Jubilee Special: 60 Years of Bankshttp://www.fool.com/investing/international/2012/06/02/jubilee-special-60-years-of-banks.aspx Cliff D'Arcy
June 2, 2012
This article is part of The Motley Fool's Diamond Jubilee Special! Alongside the rest of Britain, we're celebrating the Queen's 60-year reign -- but in our own Foolish way. In this series, we look at how the investing world has changed over the past six decades. Click here to read the introduction, complete with links to all the other articles in this series. Cheers, jubilant Fools!
LONDON -- With Britain celebrating the Queen's Diamond Jubilee, I'm reviewing the history of British banking since Her Majesty became head of state in 1952.
To help me, I grabbed my copy of Other People's Money: The Revolution in High Street Banking (2005), an excellent history by David Lascelles, former banking editor of the Financial Times.
A banking revolution
1. From gentlemen to salesmen
During the Thatcher years, all this changed, as deregulation allowed banks to take more risk, sell a wider range of products, and boost their profit margins. As a result, the personal touch vanished, so managers no longer personally knew all of their business clients. This depersonalization of banking explains the increasing appeal of old-school private banking to today's top 1%.
2. The 3-6-3 rule dies
Over time, banking has become less about boring old lending and more about cross-selling as wide a range of pricey products to as many customers as possible. Instead of being provincial and conservative, banks have become more predatory, poaching customers from each other using introductory incentives. Today, new customers are more prized than loyal patrons.
3. The rise of women
4. From high tea to IT
For example, Barclays was the first bank in the world to introduce cash machines: The first "hole in the wall" was opened by On the Buses star Reg Varney at Barclays' Enfield, North London branch in June 1967. Today, there are more than 65,000 cash machines in the U.K. Also, most lending decisions are made today by sophisticated credit-scoring software, rather than by individuals.
5. From branches to smartphones
Bank branches are dying out for two reasons. First, maintaining a high-street presence is expensive, so closing branches cuts costs, especially after mergers and takeovers. Second, the growth of telephone, Internet, and mobile banking, plus wider usage of automated kiosks, means fewer customers visit branches for their everyday banking needs.
This trimming of branches has left many rural communities with no local bank, showing how banking has become global, rather than local.
6. Innovation and complexity
They also became giant casinos by making markets (and trading for profit) in a wide range of financial securities, such as bonds, commodities, credit and interest rate derivatives, and the like. Banks also have investment-banking divisions that help companies raise money within the world's capital markets.
No longer is banking about vanilla lending and saving. In the '90s and 2000s, banks pushed the envelope to make profits from every possible financial flow. Unfortunately, this directly caused the great crash of 2007 to 2009.
7. Mis-selling scandals
As a result, the U.K. has seen a conveyor belt of mis-selling scandals from the '80s onward, involving mortgage endowments, personal pensions, payment-protection insurance, high-income precipice bonds, split-capital investment trusts, with-profits policies, equity-release plans, and so on.
This chain of scandals helped destroy the trust the public once had in bankers.
8. Beating the building societies
9. Safe as houses
Sixty years ago, a typical home cost 1,891 pounds, but house prices then set off on a 35-year winning streak, rising every year from 1955 to 1990. At the end of the '80s boom, the average price was 61,495 pounds. Six years later, the '90s crash had reduced this figure to 50,930 pounds, before another property boom pushed this average to 183,959 pounds by the end of 2007.
Today, the average stands at 162,722 pounds, so house prices have rolled back six years (but not in London, where this dangerous boom continues).
10. From debt to credit
As you can see, as "debt" was cunningly renamed "credit," our personal indebtedness exploded, soaring from just over 200 billion pounds 25 years ago to nearly 1.5 trillion pounds. This must be the biggest legacy of British banking during our Queen's reign.
11. Bigger is better
Over the next 50 years, British banking became increasingly more concentrated as smaller banks were taken over by their larger rivals. In the '60s, the Big Five became the Big Four as National Provincial and Westminster came together to form NatWest. The Big Four banks gradually consolidated their control until they dominated more than 80% of business and personal banking.
Notable acquisitions and mergers in the past 20 years include HSBC (NYSE: HBC