Politicians have called on the Government to crack down on the massive earnings of Britain's high-street banks after Royal Bank of Scotland (RBS) revealed it had made £6.1bn of pre-tax profits in 2003.
The bumper figure, which was up by nearly a third on the previous year, is the biggest profit ever recorded by any British bank, or any UK company, this year. Critics say RBS's profits reflect a wider problem that British banks have managed to make excessive sums from consumers and businesses at a time when individuals' debts have been escalating and companies have struggled to remain buoyant in the recent economic downturn.
Vincent Cable, the Liberal Democrat Treasury spokesperson, said: "The banks may well boast about their billion-pound profit margins, but they are making money at the expense of others who are getting deeper and deeper into debt."
Dr Cable called on the Government to set up a regulator to monitor the charges banks levy on their customers within the Office of Fair Trading.
RBS has become one of Britain's biggest banks in the past few years after swallowing its rival NatWest in 2000 for £21bn. The wide-ranging group also includes Coutts, the private bank which counts the Queen as one of its clients, and the insurers Direct Line and Churchill.
Last year RBS boosted its number of staff from 111,800 to 120,900. Its profits equated to an average of £50,000 generated by each member of the workforce.
Fred Goodwin, RBS's chief executive, who has masterminded the strategy behind its spurt of growth, was unrepentant about the bank's result, which was praised in the City.
"I am not shy about having made profits. Have you looked at the size of our business? We are one of the five biggest banks in the world and one of Britain's biggest companies." Mr Goodwin, nicknamed "Fred the Shred" after he slashed jobs following the NatWest merger, also angrily rounded on the consumer lobby's accusations that RBS and the other major banks were profiteering at the expense of consumers who have been taking on a mountain of debt.
Mr Goodwin pointed out that 56 per cent of RBS's profits were paid out to shareholders in the form of dividends. Among those who benefit from dividends is anyone with a pension scheme or a long-term savings policy such as a with-profits fund, both of which are invested in the stock market.
"Maybe if more companies were like us the value of people's with-profit policy would not have gone down," Mr Goodwin said.
An in-depth report into the banking sector four years ago also raised concerns that Britain's banks might be making "excess profits".
Don Cruickshank, the former regulator of the telecoms sector, suggested that banks were showing signs of behaving like a "complex monopoly".
Mr Cruickshank suggested that because banking products can be very complex, consumers find it hard to compare different options, so they are less likely to switch to new providers.
Another problem is the considerable barriers to entry into the market for new players, such as having to build up a highly expensive branch network. As a result, most new banks in the past few years such as Egg, Intelligent Finance and Cahoot have mostly been offshoots of already existing financial services companies and have only been available over the internet or telephone.
However, consumer groups and politicians have accused banks of designing overly complex products and making it too difficult for customers to switch between providers.
John McFall, chairman of the Treasury Select Committee, said of the credit card market, one of the most lucrative products for banks: "It is obvious that there is very little transparency ...the consumer is not at the centre of the equation."
Banks could be in for a crack-down by the Government. The Treasury Select Committee is due to publish its recommendations for increased regulation of the credit-card market soon. The Office of Fair Trading is also carrying out a separate inquiry into store cards, which could trigger a full-scale Competition Commission investigation.
Banking results are likely to produce record profits at almost all banks this year. Barclays reported £3.85bn in pre-tax profits last week and the other major lenders are set to announce similarly healthy sums.
'I kept calling but no one replied'
Ms Rahim Ismail, who works at Hauser & Wirth Gallery in central London, said that, while bank managers have been responsive for most of the time, she had to wait three months before a call was returned about her application to borrow less than £5,000 two years ago.
She said: "When I first wanted to take the loan, I kept calling my branch and someone was supposed to get back to me, who just didn't. I kept calling ... for three months, until eventually I found out that that particular man had left his job and no one had bothered to tell me. Then, when the loan got through, they would not leave me alone. They kept calling and asking me whether I would like to borrow some more."
Ms Ismail has a Switch card and a flexible £750 overdraft facility. She receives free travel insurance on her gold account and the bank paid her hotel bill when she fell ill in New York last year.
'I have never had any gripes' whatsoever
"It was the first bank I joined because it was my local and I have never had any gripes with them whatsoever," said Bob Leitch, 59, a partner at Kilfern Associates management consultancy in Ayrshire.
As a small business owner, with an annual turnover of £100,000, he has built a personal relationship with the bank. He said itssuccess reflected well on Scotland, where it has its headquarters. "Scotland should be shouting 'hurrah' from its rooftoops. This country does not have many worldwide international plcs based here and Royal Bank of Scotland is one of them. It is a tribute to those who are working for it," he said.
Mr Leitch, who is also director of the Scottish Chambers of Commerce, believed the bank had helped the country's small businesses. As one of the first banks to introduce telephone and online banking, Mr Leitch said the new, more depersonalised technology might alienate older customers. But he pointed out that that applied to other banks too.Reuse content