LONDON, July 28 (Reuters) – After more than a decade
trying to rehabilitate their image since an era of bailouts and
mis-selling scandals, Britain’s banks are once again a target
for public – and political – ire.
What started as a dispute between former Brexit Party leader
Nigel Farage and NatWest-owned Coutts over the closure of his
accounts has spiralled into a political and media storm that has
cost NatWest its CEO and reopened old wounds about government
intervention in the banking sector.
The fallout marks a watershed moment in relations between
NatWest and the U.K. government, which remains its biggest
shareholder following its taxpayer-funded rescue in 2008, with a
stake it says is managed at “arm’s length”.
Yet the episode has also highlighted how easily UK financial
firms can be buffeted between political factions that have
deepened since Brexit, ahead of the country’s return to the
polls before January 2025.
“The culture wars are coming to UK businesses, including the
financial sector,” said Andre Spicer, dean of City University’s
Bayes Business School.
NatWest chairman Howard Davies said the political backlash
ultimately led to the shock departure of CEO Alison Rose – the
most senior woman in UK banking – after the pair agreed it would
be too tough for Rose to continue. The finance ministry says it
was the decision of the bank’s board.
The affair also claimed the job of Peter Flavel, CEO of the
330-year-old private bank Coutts, which counted author Charles
Dickens and Queen Elizabeth II as clients.
While NatWest made several key errors, the force of the
backlash – including against the group’s environmental and
social policies – also had echoes of culture wars more commonly
waged in corporate America, Spicer said.
Concern about political influence on the NatWest boardroom
also comes at a time of heightened pressure from lawmakers on
the wider banking sector, which has been accused by parliament’s
Treasury committee of “profiteering” for failing to pass on more
of the benefit of higher central bank rates to struggling
savers.
Harriet Baldwin, chair of the cross-party Treasury
committee, said on Friday that banks should be forced to let
customers know when better savings rates are available
elsewhere.
“Given that the government, regulator and the Governor of
the Bank of England agree that action is required, the time for
foot dragging and weak excuses is over,” she said in a
statement.
DANGERS OF ‘PURPOSE’
NatWest’s Rose stepped down on Wednesday after admitting to
a “serious error of judgment” in discussing Farage’s
relationship with the bank with a BBC journalist.
While this has been branded a breach of client
confidentiality – considered a cardinal sin in banking – some
CEOs of rival banks have offered a modicum of sympathy.
“That’s a pretty, pretty heavy price to pay for what would
appear to be an error of judgment,” Bill Winters, CEO of
Standard Chartered, said on Friday.
Politicians from both major parties criticised NatWest after
an internal review emerged showing a Coutts reputational risk
committee had said Farage’s views did not align with the
lender’s own.
The review showed the committee decided to cut ties with
Farage after a mortgage he had taken out had expired, and
referred to the extra cost of managing the accounts of high
profile individuals. It also cited “risk factors including…
controversial public statements which were felt to conflict with
the bank’s purpose”.
Samuel Gregg, economist with the American Institute for
Economic Research, said the case showed why company leaders had
to be wary of wading into public debates.
“Banks have ended up caught in British political crossfire
because they have been ‘co-opted’ into supporting an array of
causes, left and right, instead of focusing on delivering
profits and shareholder value,” Gregg said.
But a board advisory consultant, who declined to be named,
said banks had little choice but to engage in environmental and
social issues as they were often pushed to do so from regulators
and investors.
The government has kept up the pressure on the entire
sector, and last week fast-tracked reforms that will force all
lenders to delay and better explain account closures.
The Farage storm has driven renewed activity online from
customers complaining they too have been ‘debanked’. A Facebook
group named ‘NatWest CLOSED down my ACCOUNT’ has attracted more
than 10,800 members.
However, data from watchdog the Financial Ombudsman Service
showed complaints about account closures represented a tiny
fraction of a bank’s overall customer base. Barclays received
the most last year, at 274, followed by NatWest with 234.
ROGUE COMMITTEES?
Experts say other banks will now be scrambling to ensure
their own policies and committees are behaving appropriately, to
avoid further scandals.
“So far, this is specific to NatWest. But what you tend to
get when any scandal blows up is a negative halo effect – that
means investors and activists start looking around at other
institutions,” said City University’s Spicer.
The CEO of Britain’s biggest domestic bank Lloyds said on
Wednesday the bank’s own policies did not include looking at
customers’ political or personal beliefs.
Rupert Younger, founder of the Centre for Corporate
Reputation at Oxford University’s Said Business School, said
banks had to ensure their own committees did not “over-reach”
and get involved in inappropriate areas.
“It’s a classic when you have a committee that decides it
needs to become relevant, and it starts to flex its muscles in
ways it shouldn’t,” said Younger. “In this case they created a
reputation crisis that didn’t exist in the first place.”
(Reporting by Sinead Cruise, Iain Withers and Lawrence White;
Editing by Daniel Wallis)
