Controversy stalks banks despite year of recovery

Dec 22 2010 By ly Williams

THERE was no let up for the under-pressure banking sector this year as rising profits and fears of a return of big City bonuses renewed public discontent.

Another bumper crop of results confirmed the dark days of the financial crisis were firmly behind the sector, but this raised questions over whether banks were doing enough to support the UK recovery.

With lending levels to small businesses still pitiful, banks faced a grilling over borrowing policies from a public and government left angry that increasing profits could not be used to help the wider economy.

After revealing a 2009 profits haul that smashed City expectations, the sector delivered yet more good news later in the year with a half-year results season that saw even the battered taxpayer-backed players return to the black.

It has been a milestone year for Lloyds Banking Group and Royal Bank of Scotland with the two players - 41% and 83% owned by the State respectively - posting their first profits since being brought close to collapse in the financial crisis.

After seeing losses of £6.3 billion in 2009, Lloyds swept out of the red this year with first half profits of £1.6 billion as bad debt losses eased sharply.

It was a similar story at RBS, which recovered from losses of £3.6 billion in 2009 to post a £9 million profit for the six months to June 2010.

But 2010 has not been a public relations success for the two banks, with Lloyds scoring an own-goal when its chief executive Eric Daniels refused to give interviews surrounding first quarter figures.

Footage of him ignoring questions and striding purposefully along the road, pursued by a BBC cameraman, made Mr Daniels appear arrogant and out of touch - and has become one of the lasting images from the sector this year.

RBS also failed to get the public on side as its boss Stephen Hester revealed in a session with MPs that even his parents think he is paid too much.

This was particularly jarring, given the many thousands more job cuts announced by both RBS and Lloyds this year.

Pay was a hot topic throughout the industry once again as some banks appeared to return to "business as usual" after the crisis.

The bonus tax introduced by the former government did little to rein in pay packages, with many simply stumping up the levy to ensure they retained top talent.

Barclays revealed it had set aside 18% more in bonuses for staff at the half-year stage despite a slowdown in investment banking returns, while HSBC said in November it had earmarked a 39% hike in staff pay and bonuses for investment bankers since the end of 2009.

While they fought to stop a flow of star bankers to better paying foreign rivals, it was also a year of change at the top for British banks.

A flurry of announcements heralded a management clean sweep at the top of the major players.