Anthony Hilton: Big banks' doomsday is a just decade away

Many of the best-known and most successful fund managers in this country will not touch bank shares with a barge pole even eight years after the beginning of the financial crisis. What is perhaps more surprising is that Antony Jenkins, who until a few months ago was the chief executive of Barclays, seems to agree with them.

Jenkins has kept a low profile since being removed from his post but he surfaced this month to speak at an event organised by the New City Agenda — an organisation dedicated to developing new thinking in the financial services industry.

His speech was notable for its home truths. Seldom has a chief executive, in or out of office, spoken with such candour about the challenges facing his business.

By way of introduction he talked about how banks, even now, were not properly fulfilling their role to society, and how they were generally unhappy places to work. He noted that only six out of the 36 major banks in Europe are earning returns which are above the cost of equity, which he reckoned was around 11%.

Furthermore, he expects them to continue to struggle with structural changes brought about by a deluge of post-crash regulation as this has fundamentally affected their ability to make money.

But he also warned that even all that regulation, intrusive though it undoubtedly is, may not be enough to make banks as safe as governments and taxpayers now expect them to be.

Banks are where they are because the distorted values of their employees led to a wholesale destruction of value for shareholders. These core values have to be re-established and this is about defining a purpose for banks and those who work in them which is not just about money or how much people earn, but how banking services, when properly delivered, can change lives. Put that in place and maintain it and in time people will begin to trust.

The responsibility for doing this must come from bankers themselves. But the regulator has a role too: he or she must define conduct of business rules which properly reflect the ideal and spell out what customers and bankers can reasonably expect from each other.

Sustainable banking also requires treating all stakeholders fairly and not indulging in short-term moves which benefit one group — say the employees — while acting against the long-term interests of another — for example, the customers or shareholders.

It needs a leadership which understands that what matters are actions not words. The leadership must also have the courage to press for change in the full knowledge that it will be resisted by the vast majority of employees and customers, because without change banks cannot survive.

Unfortunately there are no quick fixes: changing the culture of a business such as banking is a process which will take at least five years and possibly 10.

What Jenkins says makes a lot of sense. The trouble with his programme is not that it is wrong, but because it is so brutally honest about the time it will take, it is hard to see any bank following it through.

Boards seldom have that much patience, and shareholders are similarly lacking — as Jenkins himself found out when he was ousted after only three years at the helm.

The other — and perhaps equally big — risk is that banks will be overtaken by events, particularly by the application of modern technology. At some point, Jenkins says, banks will face their “Uber moment” when they have to confront the arrival of an app which delivers a much enhanced customer experience but hollows out the business and profitability of the existing players.

Jenkins is sure that technology will transform banking and could similarly transform banks but it is more likely to finish them off.

The world is flooded with fintech firms awash with venture capital money. The next three years is expected to see a tidal wave of innovation some of which might even work. The banks will survive this but will struggle to be part of it.

Four-fifths of the vast sums they spend on IT goes on maintaining their existing systems; that creates a mountain of vested interest against change and a cultural resistance to anything new.

IT people can be every bit as conservative as the rest of us — more so, perhaps, because they understand better than most just how obsolete last year’s box has become.