Bernard Ginns: Now’s the time for action not words from banking sector

Richard Gregory, chairman of Yorkshire Bank, stood before a business audience at the Rosebowl in Leeds last week and said he hoped that banks can “get ahead of the curve” in 2014.

“Last year at this event I said that I hoped 2013 would be a year in which we made progress as a sector in restoring trust and confidence and relationships, especially between business customers and banks,” said Mr Gregory, the senior independent director at National Australia Group Europe.

“It didn’t really feel like 2013 delivered on that.

“It’s perhaps an inevitable result of banks working through legacy issues or the inevitable profile of regulatory action and media coverage.”

When he said “legacy issues”, he is referring to the mis-selling of products to households and businesses. Yorkshire Bank had to increase the provision for payment protection insurance by £130m to £152m in the year to September 2013.

The bank took a £104m hit over the same period to cover mortgage payment irregularities and the mis-selling of interest rate hedging products and credit card protection.

When you get things this badly wrong, it is inevitable that the media and regulators will take notice. It is our job.

Mr Gregory said he hopes the banking industry can create the climate of confidence for businesses to invest in 2014.

He added that bankers must only create products and services that work for their customers, a “self-evident” truth based on simple morality, the increased regulatory attention and reputational risk and the idea that businesses only survive if they look after their customers.

Yorkshire Bank returned to profit last year, helped by a deep restructuring programme and lower bad debts, but the legacy of its past misdeeds is casting a shadow over its recovery.

Mr Gregory, who has been a director at the bank since 2000, insisted that banks must get on top of practical business issues to restore their relationship with customers.

These include the quality of leadership in hierarchical complex organisations, the system of governance and board accountability.

He told the audience at Leeds Metropolitan University that the bank has spent a lot of time over the last few months completely reviewing its conduct, strategy and behaviours, which he said has led to “a new and enhanced product governance frame-work”.

This will make sure that product approval, monitoring and governance goes all the way through the organisation to the board so that directors are held to account, said Mr Gregory.

He was confident that the changes will stand the lender in good stead for 2014, promising that the customers will be at the heart of everything that the bank does.

It was a contrite performance from Mr Gregory, a former TV executive whose services earned him £138,000 in salary and fees last year, but it will take more than words for Yorkshire Bank and its industry peers to repair the damage done by the cynical mis-selling of useless or toxic products to trusting customers. Action, please.

Down Under, analysts are speculating that 2014 could be the year when National Australia Bank sells Yorkshire and Clydesdale banks and exits the UK.

“NAB remains committed to its plan to sell the UK franchise, but not at any price,” said a note from Macquarie.

“Given an improving UK macro, it may well be that it can get a better price this year.”

That may be the case. It may also be the case that Cameron Clyne, the group chief executive at NAB, decides to hold on a little longer.

Ed Miliband’s plan to create more competition in the banking sector could lead to some transformational opportunities for Yorkshire Bank.

The lender could enter a joint venture with a big private equity fund and acquire a rump of branches from Lloyds or Royal Bank of Scotland.

This would create an institution of the scale needed to compete with the big beasts of the high street.

A subsequent flotation could also provide NAB with the chance to make its long-desired UK exit.

@bernardginns