‘Fundamentally this is a good business that was mismanaged. RBS had expanded too much and hadn’t had effective controls but the retail bank will continue to produce a reasonable return,’ RBS chairman Sir Philip Hampton told MT. ‘Hopefully we’ve now fixed the horrible short term challenge of IT strains.’
That IT headache has pushed the bank’s balance deeper into the red. The Royal Bank of Scotland made a £1.5bn loss in the first six months of 2012, it was revealed today, helped by last month’s IT meltdown which left hundreds of thousands of people unable to access their bank accounts.
RBS, which is 82% owned by the UK government, put aside £125m in compensation for customers affected by the glitch. It also added a further £135m to the £1bn already set aside to cover compensation for customers who were mis-sold payment protection insurance (PPI).
‘The rate of claims that have been coming in has been higher than original expectations, partly because of claims management companies,’ Hampton said. ‘All banks have been topping up their PPI provisions and the predictions are it’s going to cost the industry £10bn.’
RBS’s half-year £1.5bn loss is a significant rise on the same-period £794m loss last year, and the short-term IT fiasco isn’t the only concern. The bank, which has 30 million customers worldwide, could face more fines as the Libor debacle continues to unravel. The rate-rigging scandal has already forced Barclays chief executive Bob Diamond out of his job. Barclays has tried to paper over the cracks by coughing up a £290m fine to appease regulators - but that could just be the tip of the iceberg.
As for RBS, the bank recently admitted it had sacked four traders involved with the rigging of interest rates, and the bank is currently being scrutinised as part of the ongoing regulatory investigation into Libor malpractices.
‘Banks have got absolutely rock bottom reputation at the moment, and understandably so,’ Hampton said. ‘Something did go wrong in banking, and not just in this country. Banks need to change their attitudes, primarily in relation to the customer. It’s almost like the customer is an opportunity rather than someone to satisfy.’
- The full interview will be in September’s edition of Management Today, out on 31st August.