Since 2007, the British Government has been trying to coax banks into lending, especially to small and medium enterprises, SMEs. The Funding for Lending Scheme, FLS, set up last summer, is now being ramped up because it is not working. Anecdotal evidence shows a banking sector utterly oblivious to the kind of financial problems SMEs struggle with. Last year, HSBC paid £2.8bn for its anti-social behaviour, i.e. fines for past wrongdoing such as money laundering and its CEO Stuart Gulliver pocketed $14m, up from 10.6m in 2011.
“Connecting Customers to Opportunities” is the title (annual reviews now have titles), nothing less, of HSBC Holding’s 2012 annual review. It boasts of “supporting the growth of small and medium-sized enterprises with international ambitions… We enable businesses to thrive and economies to prosper, helping people fulfil their hopes and dreams and realise their ambitions. This is our role and purpose.” HSBC claims its lending to SMEs is up 3% last year.
The Barclays 2012 annual report, “Building the Go-To bank” tells the reader the bank is changing. “That means we are listening more than ever before, to our customers and clients, our employees and to all of the people our work impacts.”
Last summer, the HM Treasury together with the Bank of England launched its Funding for Lending Scheme, FLS: for every pound a bank lends to SMEs, it gets a pound of cheap money from the Bank of England. Now – because this scheme is not working as it should – the FLS will be extended in time and generosity:
For every £1 of net lending to SMEs in 2014, banks will be able to draw £5 from the scheme in the extension period. And to encourage banks to lend to SMEs sooner rather than later, every £1 of net lending to SMEs during the remainder of 2013 will be worth £10 of initial borrowing allowance in 2014.
A Bank of England report on the FLS states: “Early signs have been encouraging, as funding costs for UK banks have fallen sharply.” – It so happens that yes, funding costs have fallen. However, this is not of any help to companies the banks totally and completely ignore because servicing SMEs can be labour-intensive and the numbers are not very high. Until some of them do take off, which they do.
It just so happens that I know of companies that exactly fit this description, some of which bank with HSBC. Even companies that have a turnover of several hundred thousand pounds get nothing more than the same overdraft a private individual with average salary can get.
And yet, a UK bank would not even need to take much risk here. The British Government is showering HSBC and other banks with money from the FLS to help and assist small companies. Unfortunately, this help from the Government does not fulfil its purpose if the banks do not pass the funds on.
Although the Government throws money at banks for dirtying their dainty hands on doing business with, in politician-speak, the so-called “real economy” (in contrast to the pure bonus-inducing financial acrobatics) they just cannot be bothered to pick up the pounds from the FLS, which is why the scheme is being extended.
The non-lending is nothing new. Ever since the summer of 2007 – almost six(!) years ago – banks have been reluctant to lend. Now, I’m not suggesting that they should lend as they did – mindlessly into the building sector, into financial acrobatics to pump up profits for bonuses such as Stuart Gulliver collect. No, I am only suggesting lending to companies that are running good businesses – and yes, closest to my heart are small growing companies, hiring people, making clever business and brilliant things.
Yet, from the slickly titled annual review we do learn that HSBC has indeed been offering some special services to SMEs, unfortunately a service that its Group Audit Committee, GAC, finds less than useful: “HSBC’s involvement in the sale of interest rate swaps to small and medium sized businesses in the UK and the potential costs of remediation.”
HSBC thought, at some point that SMEs greatest need were some clever interest rate swaps. Can you imagine? Whose interest did HSBC have at heart in offering these swaps? The GAC thinks this was not for the benefit of the clients mis-sold this product. HSBC is clearly ready to put some work into selling unsuitable products to SMEs – but, from anecdotal evidence – and from the fact that FLS is now being ramped up – it is clear that banks are not as ready to put work into understanding what some of their small and ambitious clients need to fulfill their ambition and potential. Not at all.
I am not against banks – not at all – but I am vehemently against companies that behave like banks, look like banks, call themselves banks but ignore small and medium companies doing good business. It is galling to see banks – of all institutions – be so mindless, so senseless, so short-sighted, so socially irresponsible, so downright evil, as to ignore the green shoots in the business community, always sorely needed but especially now at times of high unemployment and low growth. It will take more than annual reviews with schmaltzy titles for banks to gain trust.
I hate to say it – after all, I do believe in private enterprise – but when is the Government going to set up not only a green bank but an SME bank – or support such banks directly – to do the job that the big banks, in their hubristic anti-social behaviour just cannot be bothered to? Let us face it – banking as practiced by the big banks – has abandoned activities useful to the sweaty gritty economy and moved into a realm of its own. In this realm, client-care means fleecing clients big enough to be fleeced (think Goldman and Abacus) but ignoring those small enough to need old-fashioned banking service.
In August 2009, Lord Turner, at the time the chairman of the FSA, aired his misgivings about innovation in banking, saying some of it seemed to be “socially useless activity.” Now we know much more – we know that banks have not only been involved in “socially useless activity” but outright criminal activity, one of them being HSBC. Hence, its fines of £2.8bn and more to come.
This, in addition to rate-rigging and thwarting competition; in short banks are doing their best to kill all that is good about capitalism: the ability to sprout an idea into a company and job-creation. When big banks deny services to companies with the ability to hire more people in the near future, it is both trampling on green shoots and being as anti-capitalistic as the old Soviet regime.
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