Business View: If banks can't milk consumers for growth, they'll have to find some suckers

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The Independent Online

If you ignore Northern Rock (easily done), the banking results season kicks off on Thursday with Barclays. Last week's interest rate hike and some alarming personal bankruptcy statistics show that the UK consumer, who has been the engine of growth and profitability for the banks for a decade, might be facing a little local difficulty. So, if the banks are not able to milk the good old British retail customer, what will they do?

Here is my guide to the alternatives.

1. Ride the corporate gravy train.

Raising finance for big companies stopped being a reliable source of income for the high-street banks some time ago - partly because the big companies got clever, partly because the big American, Swiss and German investment banks carved up the market. Only one of our big banks is really good at 21st-century corporate finance: Barclays, through its Barclays Capital business. Royal Bank of Scotland dabbles and HSBC is making one of its periodic efforts to become a serious player, which no doubt will end in tears like the previous two or three attempts.

2. Find some suckers abroad.

HSBC and Standard Chartered have a history of going to far-flung places - from Mumbai to Merida - to make money. And they have some great opportunities in China, India, the Middle East and, with HSBC, Latin America (though this has been a tricky proposition in the past). The others are weak in the developing world. Royal Bank of Scotland has a great franchise in the north-east of the US, and Barclays is making some headway in Spain. But none has a real foothold in Europe. Most, though, are looking for something to buy abroad. History suggests one of our banks will come a cropper.

3. Just milk the cow harder.

Some of our big banks are rather stuck in the UK retail market - HBOS, Lloyds TSB and Abbey National stand out. And each, in its own way, is trying to get more eggs from the golden goose. HBOS, as the fifth force in banking, feels it can win business from its rivals. But even dancing bank managers cannot tempt most people from the abusive relationships they have with their main banks. This growth will come more slowly than HBOS hopes. Lloyds TSB's new boss, Eric Daniels, thinks he can get more of the "wallet" of the customers he has, persuading them to buy half their financial services from him rather than the current third. Again, it is a difficult task, which is why Lloyds is spending an unprecedented amount on new customer relationship software. As for Abbey, its big idea is a new corporate image. Still, thanks to the successful cleaning-up of its ill-advised excursion into corporate finance, it has buckets of capital. Someone surely will buy it.

Banking analysts have been moaning, "Where's the growth?" like the old lady in the Wendy's adverts who went, "Where's the beef?" For many of the big banks, the question is hard to answer. The danger is that they are going to make some terrible errors trying to get out of this quandary.

So these are hard times in the City?

Even if you say it quickly, £108m is a lot of money. The "reasonable" fees that Invensys is paying to its bankers and advisers for its £2.7bn refinancing break down into £12m for advisers, £25m for the underwriters of the £450m equity issue, and an astonishing £60m to Deutsche for arranging the debt raising. However, chief executive Rick Haythornthwaite says these are "market rates".

Somehow it does not seem right. Smith & Nephew last week admitted it had to pay £27m in fees for its failed bid for Swiss group Centrepulse, while if Arun Sarin decides he should put an offer in for AT&T Wireless, Vodafone can kiss goodbye to at least £10m.

It has, apparently, been three lean years for City firms. Yet there are still thousands of people commanding upper six-figure or even seven-figure salaries. Offices with marble reception halls, large enough to host the Six Nations rugby tournament, abound. When I cross the road in Canary Wharf or Broadgate, I'm still likely to be knocked down by a twentysomething in a Porsche.

The logic of the Invensys bonanza is that the costs are much less than they would be if the group were to carry on the way it was going, and had to strike a debt-restructuring deal with its bankers. That could be right. The British Energy rescue cost as much as this refinancing. But then it had more liabilities than Invensys.