So says Allister Heath over at City AM (article not online). I've linked to his work before but I thought this quite an eye-catching claim - so here's the article in full.
City banks have finally turned a corner
IT is not fashionable to say so but the UK banking system is past the worst. True, several institutions have been turned into pathetic state-owned zombies and the road ahead will be tough for all. But banking conditions are improving, the system has been stabilised, losses contained and some visibility restored. The outlook for the banking sector is far healthier than just six months ago, when it looked like the UK could be hit by several Lehman Brothers-style catastrophes. Such a doomsday scenario now fortunately seems remote.
Before you start to think I’ve gone mad, soft or both, let me hasten to add that there will be more write-offs as repossessions mount and property prices slide, that taxpayers will be walloped and that investors in the nationalised firms will never recover.
But consider also some of the following. A floor has been put under RBS and Lloyds’ losses. There is almost no chance of a fresh bank run or collapse; and while nasty surprises may be lurking in balance sheets, boards and the authorities are no longer working with pie-in-the-sky asset valuations. Analysts can now make sensible predictions of what will happen to loan books, impairment rates and the rest as unemployment continues to surge. Northern Rock is working through its problems, as is Alliance and Leicester, which found a good home in Santander. HSBC will be in even stronger shape after its rights issue, and Standard Chartered is doing great. The only real uncertainty surrounds Barclays. Let us hope that it learns from Lloyds’ debacle and feels confident enough to stay clear of the asset protection scheme. But at least we now know what the worst case scenario could be if it decides to call in Lord Myners.
While this adds up to an impressive list, all of it and more could have been achieved at lower cost and with reduced side-effects with better policies. It is a long-term disaster that so much of the City is now under state control and direction. The government’s reaction to the crisis over the past 18 months has been repeatedly blighted by shocking misjudgments, amateurish u-turns and numerous errors; no wonder it is trailing so badly behind the Tories in the polls.
Yet what matters now is the future. Here are a few worries. Commercial and residential property still have further to fall. The rest of the world is in an intensifying recession, with Eastern Europe poised to implode, which could hit UK banks. The extra lending RBS, Northern Rock and Lloyds have agreed to undertake could either be used productively – to maintain overdrafts for sound small businesses, say – or to rekindle a bubble. The government remains keen to take legal action against top bankers to distract voters from its own, much greater errors; but failure should be a sackable offence, not a crime. Lloyds must be allowed to make the cost cuts required to integrate HBOS. Barclays must hold on to Barclays Capital and Barclays Global Investors; the bank must hold its nerve if it is to emerge victorious from the crisis.
Last but not least, we need a new regulatory and monetary framework which preserves and builds the City’s competitiveness while trying to prevent future unsustainable bubbles. Apart from some tinkering with bonuses, however, we have yet to see anything of substance on that front. But let that not spoil today’s (relatively) good cheer.
