A bunch of bankers

There was a time when ‘merchant banker’ was used as rhyming slang for something rude - now it seems that all bankers have become a dirty word.

This week some of the UK’s biggest bankers were placed in the modern-day equivalent of the village stocks, with our elected representatives hurling rotten tomatoes at them on our behalf. Now, there would have been outrage had these bankers tried to bluff it and claim they’d done nothing wrong, but when they did apologise it was dismissed as the result of media-training by their PR spin doctors.

But did we really expect tears from some of the most powerful businessmen in finance? And it is important to remember that no matter how devastating this whole mess is, even if some of them are semi-privatised, UK banks are still businesses.

The point of this spectacle and subsequent public furore was finding someone to blame, or moreover someone to pay for their actions and make it all better. But that’s not going to happen and the best we can hope for is a renewed sense of caution amongst us the public, because to be honest I fully expect the financial geniuses to come up with another sub-prime style money-maker in a couple of years.

And if you want to allocate blame, credit consumers have to share responsibility: anyone who ignored their parents’ sagely advice to save, and instead collected credit cards like football stickers; anyone who honestly thought that, even though they had previously defaulted on their loans, ‘this time’ they’d be able to afford a much more expensive sub-prime mortgage; and anyone who thought that getting a home loan bigger than the actual value of the property they were buying was a great idea.

We can’t blame the bankers alone, because whatever you think of their pay packets and their actions in hindsight, it would be foolish to think that these four bankers and their like purposely set out to wreck their institutions and the financial system.

Sub-prime was pioneered by a handful of lenders who saw that higher risk borrowers were not being served by mainstream lenders who were still smarting from the 1980s property crash. Sub-prime was regularly termed ‘dirty’ business by those in the trade and viewed with disdain by the big banks and building societies.

Until they saw the profits and the growing customer demand.

The real growth in sub-prime was fuelled by high street names and merchant banks jumping on the bandwagon like those poor souls who send thirty quid off to an advert promising a grand a week income for working three hours a day. Most of these Johnny-come-latelys were blinded by pound signs and relaxed their traditional risk aversion, partly because it was new territory they were trying to understand, but also because they were delivering increased profits to their shareholders.

Why didn’t the regulator spot the problem? As a mortgage broker friend of mine once said, ‘if the civil servants at the FSA really understood the industry, they’d be earning four times as much working for a bank’. And if the banks themselves did not really appreciate the scope and complexity of the risk, what chance did the pencil-pushers have?

The financial crisis comes down to a fundamental question of philosophy and approach to risk that is present in every business. In one camp you have those institutions who thought they understood and could manage the risk; a belief that was borne out for a while by their increased profits. In the other camp were those lenders who took a conscious decision to keep out of sub-prime and the associated wholesale markets, although you can bet your life they were under a lot pressure to change tack and follow the money.

What needs to happen now within our financial institutions is a change of culture and a shift away from the all-consuming desire for profit that drives the development of ever more complex products that are designed to give consumers the money they demand whilst shifting the risk on to somebody else’s balance sheet.

We need a return to a financial services culture where customers are put first and common-sense and sustainability is prized over super-profits and instant cash gratification. And that culture has to be promoted from the CEO right down to the front-line staff and the consumers we are communicating with. This culture still exists amongst some institutions, such as the Principality Building Society.

Take as another example a friend of mine who is high up in the comms department of a major bank, and who for the last six or seven years had been saying that sub-prime wasn’t sustainable, to which I would usually reply ‘keep on saying that mate, and one day you’ll be proved right.

Well he was proved right. And guess what? The bank he works for has been virtually untouched by these super bad debts.

So before you dig out another bag of rotting veg, remember that for a business to be successful it does not have to be run by a complete bunch of bankers.