Banks

Costumers are fleeing the large banks in Britain

The Guardian has:

The figures are not very well harmonised:

–          Credit unions report 20.000 new accounts the last 6 months

–          Building societies  78.000 the last quarter

–          The Cooperative Bank has seen a 43% increase in switching to its current accounts

One saving grace is that the Guardian has no pretence of doing anything but sensationalism without providing any sort of overview of the 60 odd million Britons.

As to reason a number of scandals are mention – and there are a lot to pick from.

But there is a grass-root movement accounts shift away from the so-called big five –Barclays PLC (LON:BARC) (NYSE:BCS), HSBC Holdings plc (LON:HSBA) (NYSE:HBC), Banco Santander, S.A. (NYSE:SAN), Lloyds Banking Group PLC (LON:LLOY) (NYSE:LYG) and Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS)– to ethical or mutually owned alternatives.

This could be media inspired if it was not for Danske Bank that last month launched a PR-advertisement campaign claiming a “new normal” – which immediately struck rock bottom. Danske Bank A/S (CPH:DANSKE) (PINK:DNSKY) had to stop several different advertisements in short order. CEO Eivind Kolding took a meeting with representatives from the “Occupy Now” movement that literally told the CEO of the august bank to: “Eat shit”. They were pretty specific as to how that meal was not only to be enjoyed, but savoured.

This led to another unusual move by CEO Eivind Kolding – perhaps it dawned upon him that the more outspoken client segment wasn’t totally convinced – so he wrote a column in the daily newspaper Politiken (left of centre politically). Again the reviews were very mixed. The usual bunch of claques praised the “courage and honesty of the excuse” (it was yada yada yada) on their blogs: One of them asked if it had occurred to the public that Danske Bank A/S (CPH:DANSKE) (PINK:DNSKY) might actually be sincere? A short reply was: And Hannibal the Cannibal turned vegetarian????

Other – non-business journalists and bloggers barely remained civil in their refutation of the Danske Bank campaign. The other banks wisely kept their big trap shut.

Again numbers vary – but one estimate of Politiken says that Arbejdernes Landsbank and Lån & Spar – both owned by the workers movement had gained 22% new clients to 370,000 in 2012 – which leaves a net gain of about 50,000 – a figure that sort of matches other Politiken claims. The interesting thing is that Danske Bank A/S (CPH:DANSKE) (PINK:DNSKY) admits to a loss of 10,000; but at the same time announced 3,000 jobs to be cut. We are talking of a country with a population of 5 mio.!

The columnist at Politiken summed it up nicely saying that people are now passing Danske Bank branches laughing!

Comment:

There is indubitably a consumer movement away from the major banks, but it is of necessity limited to the clients that actually can move their business, as banks do nowhere near want binding their hoarded equity in anything but depositors with an unblemished credit history.

In the Danish CB there is about 250-300 bio. DKK tied up in very short term deposits at a negative interest rate. Most of it is probably pension funds with nowhere to place their cash as both Danish and German sovereign bonds are in very short supply.

The large banks are of course annoyed by the lack of access to cheap funding, but retail banking is just a small part of their business. It does constitute a problem – even though cheap funding is available by the courtesy of the CB’s. This leads to another problem, as they only lend against prime quality collateral – which again opens the books to CB’s prying eyes.

To put in another way: The talk about quantative easing in this connection is somewhat of a misnomer, what happens is that depositors in their mistrust – or just plain hatred – of the larger banks deposit their money in small banks that have no way to put the cash to work – thus ending up as CB deposits, from where they are forwarded to the large banks (again with good loans as collateral). The net money supply really isn’t affected.

The next turn of the screw is more serious: As the large banks cannot extend credit due to lack of funding, businesses will have to find and/or be provided with alternative sources of credit.

One such possibility is supplier/costumer credit, which is generally not a good idea, as credit assessment rarely is a core competence in industry – leading to unnecessary expensive credit. But then again some concern has been raised on the banks ability to estimate risk.

The overall conclusion is that the large banks are steadily – at times alarmingly – losing their best clients – the ones they make money on and with, and are left with all the losers.