LONDON, July 28 (Reuters) – After more than a decade trying to rehabilitate their image from an era of bailouts and mis-selling scandals, Britain’s banks are once again the target of public and political ire.
What started as a spat between former Brexit Party leader Nigel Farage and NatWest-owned Coutts over the closure of their accounts has escalated into a political and media firestorm that has cost NatWest its CEO and reopened old wounds about government intervention in the banking sector.
The fallout marks a turning point in relations between NatWest and the UK government, which remains its largest shareholder after its taxpayer-funded bailout in 2008, with a stake it says is managed “at arm’s length.” competence”.
However, the episode has also highlighted the ease with which UK financial firms can be tossed between political factions that have deepened since Brexit, ahead of the country’s return to the polls before January 2025.
“The culture wars are reaching UK businesses, including the financial sector,” said Andre Spicer, dean of City University’s Bayes School of Business.
president of NatWest howard davies said the political backlash ultimately led to the CEO’s departure alison rose – the highest ranking woman in UK banking – after the couple agreed it would be too difficult for Rose to continue. The Ministry of Finance says that it was the decision of the bank’s board of directors.
The matter also claimed the work of Peter FlavelCEO of the 330-year-old private bank Coutts, which counted writer Charles Dickens and Queen Elizabeth II among its clients.
While NatWest made several key mistakes, the force of the backlash, including against the group’s environmental and social policies, also had echoes of the culture wars more commonly waged in corporate America, Spicer said.
Concerns about political influence in the NatWest boardroom also comes at a time of heightened pressure from lawmakers on the broader banking sector, which has been accused by parliament’s Treasury committee of “profiting” by failing to broadcast more benefits from higher central bank rates. to savers in trouble.
Harriet Baldwin, chair of the all-party Treasury committee, said on Friday that banks should be forced to inform customers when better savings rates are available elsewhere.
“With the government, the regulator and the Bank of England governor agreeing that action is required, the time for procrastinating and lame excuses is over,” it said in a statement.
DANGERS OF ‘PURPOSE’
NatWest’s Rose resigned on Wednesday after admitting a “serious error of judgement” in discussing Farage’s relationship with the bank with a BBC journalist.
While this has been called a breach of client confidentiality, considered a cardinal sin in banking, some chief executives of rival banks have shown a modicum of sympathy.
“That’s a very, very high price to pay for what appears to be an error in judgment,” Bill Winters, chief executive of Standard Chartered, said Friday.
Politicians from both major parties criticized NatWest after an internal review surfaced showing that a Coutts reputational risk committee had said Farage’s views did not align with those of the lender.
The review showed the committee decided to cut ties with Farage after a mortgage he had obtained expired, citing the added cost of managing the accounts of high-profile individuals. He also quoted “risk factors including… controversial public statements that were deemed to be in conflict with the purpose of the bank.”
Samuel Gregg, an economist at the American Institute for Economic Research, said the case showed why business leaders had to be careful about wading into public debates.
“Banks have ended up caught in the crossfire of British politics because they have been ‘co-opted’ to support a variety of causes, from left to right, rather than focusing on generating profit and shareholder value,” Gregg said.
But a consultant adviser to the board, who declined to be named, said banks had no choice but to get involved on environmental and social issues, as they were often pressured to do so by regulators and investors.
The government has kept up the pressure on the entire sector, and last week accelerated reforms that will force all lenders to delay and better explain account closures.
The Farage storm has spurred renewed activity online from customers complaining that they, too, have been ‘unbanked’. A Facebook group called ‘NatWest CLOSED my ACCOUNT’ has attracted over 10,800 members.
However, data from the watchdog Financial Ombudsman Service showed that complaints about account closures represented a small fraction of a bank’s overall customer base. Barclays received the most last year with 274, followed by NatWest with 234.
ROUGH COMMITTEES?
Experts say other banks will now push to ensure their own policies and committees behave appropriately, to avoid further scandals.
“So far, this is specific to NatWest. But what you tend to get when a scandal breaks is a negative halo effect: That means investors and activists start looking at other institutions,” said Spicer of City University.
The chief executive of Britain’s largest domestic bank, Lloyds, said on Wednesday that the bank’s own policies did not include scrutinizing clients’ personal or political beliefs.
Rupert Younger, founder of the Center for Corporate Reputation at Oxford University’s Said Business School, said banks needed to ensure that their own committees did not “overreach” or engage in inappropriate areas.
“It’s classic when you have a committee that decides it needs to become relevant and starts flexing its muscles in ways it shouldn’t,” Younger said. “In this case they created a reputational crisis that didn’t exist in the first place.”
Reporting by Sinead Cruise, Iain Withers, and Lawrence White; Edited by Daniel Wallis
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