Changing banks?

As the banking sector's collapse leads to a wholesale re-structuring of the industry, Sarah Irving explores what has changed for consumers looking to choose an ethical current account.

What's in this report?

This report looks at the major providers of current accounts in the UK, including some mutual building societies which provide easy-access accounts which effectively function as current accounts.

When Ethical Consumer started rating banks twenty years ago the main high street banks were under attack for funding oppressive regimes and environmentally-damaging projects. As we explain below, little has changed in this respect. What has changed is the credibility of mainstream institutions as a safe place to leave your money.

This factor, as much as ethics, will be behind the unprecedented growth in deposits at ethical pioneers like the Co-operative Bank and Triodos over the last twelve months. Whilst our ethiscore is not a certain predictor of a bank's stability (Northern Rock has always scored highly), there is a strong general trend for the least ethical institutions to be in the most financial trouble right now.

Furthermore, as all our Best Buy current accounts are at mutual organisations, there also appears to be a trend (perhaps unsurprisingly) for higher ethical values at organisations not seeking a profit for shareholders.

So whether it is a continued failure to take sustainability seriously, or just disgust at the greed of mainstream banks that drives consumers to finally get around to changing their bank accounts, it's never been easier to actually make the switch. New accounts should take no more than 10 days to set up, and a recent Which? survey has shown that 73% of people found switching relatively easy.(37)

Further good news for people wanting to switch to a more ethical bank is that it shouldn?t be necessary to accept a drop in product quality (as it is in some sectors) to have an ethical current account. Interest rates are currently too volatile for ECRA to have completed a standard price table for this report. But if we look at the Best Buy current accounts in the most recent Which? report, we find that Alliance & Leicester, Nationwide, Smile, Yorkshire Bank and Cahoot top the list. Two of these, Smile and Nationwide come out particularly well in our report too, and Smile (the Co-operative Bank?s internet account) received Which?'s highest 'customers' satisfaction' rating of all five best buys.(37)

How we rate banks

Ethical Consumer rates banks slightly differently from the way we assess other companies. As well as recording their own actions, such as membership of lobby groups or workers' rights abuses, we also look at the companies for which they provide services such as bank accounts or loans, and those in which they have shareholdings. For this report we checked the banking and shareholding information of companies in the controversial companies on websites such as Hemscott.com, as well as using information from banks' and companies' annual returns.

For example, Citibank is listed as a banker for British American Tobacco, so it receives a half mark in the Irresponsible Marketing column on the table. RBS is listed as a banker for Unilever and receives a mark in the Animal Testing column, and so on. Full details appear in our Issue 118 research supplement or PDFs of this Report.

Two companies in this report, Co-operative Financial Services and HBOS received the highest rating for active shareholder engagement on ethical issues in our Insurance Report in Issue 109 in December 2007. Where best engagement practice is evidenced, and the institution is only a shareholder, the group will not receive a negative mark in this report. The CIS, for example, engages actively on carbon disclosure and other climate change issues, so it doesn't receive a mark in the Climate Change column for its shareholdings in BP. It does not, however, apparently engage on tobacco manufacture, so does receive a negative rating in the Irresponsible Marketing column for its holding in British American Tobacco.

Public Ownership

For decades campaigners have urged governments to exercise power over companies which destroy the environment and abuse human rights. The response, more often than not, has been that the overseas affairs of private companies, if they are not illegal (and in many cases even if they are), are beyond the responsibility of the authorities. Governments also claim that the demands of international legislation and competitive advantage would make intervention economically damaging and legally difficult.

Well, thanks to massive Treasury bail-outs, several major banks are ours. The taxpayer's. We've bought big chunks of them. And yet governments still seem unable or unwilling to exercise any control over their—our—new assets. Even in the area of credit availability, which is one of the problems the bank bail-out was supposed to tackle, owning significant proportions of major high street banks doesn't seem to have made the government able to force them to make domestic mortgages and commercial credit more accessible.

What hope, then, that huge public shareholdings in high street banks might also encourage the government to force these massive institutions to curb their lending and investment in oil exploration that's fuelling dangerous climate change, or in arms deals that are worsening violent conflicts around the world?

Nationalisation by any other name?

Government stakes in the banks in this report, as of March 7th 2009, included:
UK government—100% of Northern Rock,(1) 90% of Royal Bank of Scotland,(2) 65% of Lloyds Banking Group.(3)
Irish government—25% of Bank of Ireland.(4)
US government—36% of Citigroup(5)
Sovereign Wealth Funds of Qatar and Abu Dhabi—31% of Barclays(6)

Most of these stakes have been taken as part of bail-out packages and not as investments, and are expected to be reduced as quickly as possible. As a result they have not been used to calculate the companies' ethiscores and records on the table. The exception is Barclays' decision to go to Gulf Sovereign Wealth Funds for investment, which has been incorporated into its ownership structure.

Case study: Royal Bank of Scotland—fuelling climate change

London campaign group Platform has been campaigning on the Royal Bank of Scotland's massive investments in oil and gas exploration for several years. With RBS now substantially owned by the British public, it's redoubled its calls for the bank to be forced to take a more responsible attitude to its lending and holdings.

"It?s bad enough that RBS account holders were having their money used to finance climate trashing projects around the world... now every single taxpayer in the UK has also been drawn into the mess," says Platform's Kevin Smith. "The government is keen to take an 'arms length' approach to its ownership of the bank, but the interests of the taxpayer as shareholder would be much better served by creating a more climate-secure future than by the short-term inflation of RBS's profit margins. There's a universally acknowledged need for more regulation of the banking sector, but this should include addressing the climate damage that these financial institutions are doing rather than just dealing with the relatively cosmetic business of capping executive bonuses."

And public stakes in RBS don't seem to have affected its behaviour. In November 2008, after its first recapitalisation by the British government, the bank took part in a major bond issue by E.ON, the owners of the controversial Kingsnorth coal-fired power station.(7) And RBS itself boasts of its 'record haul' of 'Deal of the Year' awards from the commodity finance industry, including deals cut for oil companies like Russia’s Lukoil and Saudi Arabia's Kayan.(8)

Climate campaigners such as Platform and Banktrack are calling for compulsory disclosure of banks' carbon liabilities, and an Early Day Motion in the British Parliament is aimed at making this law.

For more information visit www.platformlondon.org or www.oyalbankofscotland.com or join the Oil Bank of Scotland Facebook group. You can also call 020 7403 3738 or write to Platform London, 7 Horselydown Lane, Tower Bridge, London SE1 2LN.

Dropping standards

It's a recession—we can't afford to be thinking about the environment and human rights. One of the knee-jerk responses of those whose commitment to improving environmental and social sustainability was always shaky has been to assume that ethics cost money, and can comfortably be abandoned when times are hard.

When Ethical Consumer first covered Citigroup, nearly 10 years ago, it was being hailed as the world's biggest and most destructive bank, fuelling conflict and, in particular, being targeted for its involvement in the destruction of rainforests. Intensive campaigning by US environmental groups meant that by 2007 it was instead being credited as making genuine moves to a more sustainable way of working. But when the shaken bank decided in early 2009 to sack tens of thousands of staff, members of its socially responsible investment (SRI) team were amongst them.(9)

According to Peter Mason, managing editor of Ethical Performance, this is part of a wider trend of job losses in the ethical investment divisions of mainstream banks. "Some of the biggest effects of the recession are being found in the financial sector, especially on the SRI side," says Mason. "A few CSR posts in other large companies seem to be under pressure, but there the prognosis generally seems to be better. The flipside, of course, is that much of what has happened is down to short-termism and irresponsible behaviour, so you'd think that SRI would emerge stronger. That's not the case at the moment, but perhaps in the longer term it will be."

But those banks really committed to ethical policies, such as the Co-operative Bank and Triodos, are, says Peter Mason, benefiting from it. "The smaller but more dedicated banks do seem to be reporting stronger results, specifically because of their ethical stances," he says. "It's the SRI teams in mainstream banks which are being lost."

Shameful bonuses

It's not often at Ethical Consumer that we find ourselves quoting US presidents—and especially agreeing with them. What a difference an election can make. But it's become conventional political wisdom that we can bash the bankers. Hailed as the super-successful drivers of our economy when times were good, anyone questioning the vast bonuses doled out to, and huge, risky deals done by, investment bankers and hedge fund managers was a killjoy, unrealistic, a utopian who didn't 'get' the pressing imperatives of the money markets.

Somewhat belatedly, the politicians who helped to create the environment for this have discovered financial morality and prudence. Bonuses are now bad, and now even some of the bankers, in acts of collective public mea culpas, are saying (through gritted teeth) that they agree.(10) RBS, for example, announced that it had agreed a new pay package with the British Government which included cancelling all Board bonuses for 2008 and pay increases for 2009, and that no bonuses or increases would be given to "staff associated with the major losses suffered in 2008."(11)

But before all this happened, who at our major public banks was still gravy-training it? Here's a look at what some of those execs were getting before their new-found frugality kicked in:
In 2008, Citigroup CEO Vikram Pandit netted over US$216 million in pay, bonuses and stock options—just to get him to actually join the company. Four other senior management figures got between seven and 24 million dollars each in 2007.(12)
In 2006 HBOS, which was taken over by Lloyds Banking Group after it nearly collapsed, paid four if its directors over £1 million each.(13)
In 2007, two Barclays? directors were paid totals of over £1 million each, two were paid over £2 million each and one was paid over £6 million.(14)
Even at mutual Nationwide, in 2008 two directors were paid over £1 million each.(15)

Tax Havens

As the British economy sinks into recession and the need for welfare support and domestic investment grows greater, the dash to squirrel big corporate profits and the savings of the wealthy away in tax havens seems ever more immoral. But squirrelling they still are. The private banking subsidiaries of major banks, such as Coutts (RBS), are still helping the super-rich to put their money well out of the reach of the Inland Revenue, while corporate banking divisions do the same for companies.

A recent Guardian investigation claimed that Barclays was "Britain's most active legal tax avoider". It's alleged to have helped companies including Caterpillar move money and assets around the world's tax havens, avoiding paying into national coffers.(16) Meanwhile Lloyds TSB—now majority-owned by the UK taxpayer—was accused by the British Treasury of disguising commercial loans as investments in order to avoid paying tax on them itself.(17)

Still arming the world...

While the high street banks are getting grief for their mismanagement of our funds and mortgages, many of them are also still playing the same dirty investment games that they've done before.

In October 2008 London NGO War On Want released 'Banking on Bloodshed: UK high street banks' complicity in the arms trade'. The report details how most major banks are still involved in financing the sale of arms, including cluster munitions and depleted uranium, which cause terrible injuries to civilians around the world. According to War On Want's executive director John Hilary, "The truth is that if you bank with Barclays, Halifax, Bank of Scotland, HSBC, Lloyds TSB or Royal Bank of Scotland your money is directly supporting weapons production."

Barclays is listed as the company most heavily embroiled in weapons manufacture and trading, while RBS is one of major arms manufacturer BAe Systems' principal bankers. Lloyds TSB and HBOS, now merged, are said to hold over £1.1billion in arms company shares. And, claims the report, despite public statements that it will "avoid certain types of business, such as financing weapons manufacture and sales," HSBC's entanglement in the arms sector has not diminished.

On the international stage, other reports find that Citigroup—along with HBOS and Royal Bank of Scotland—has extended millions of dollars in credit to EADS, the manufacturer of the Eurofighter.(18) In 2008 Danske Bank announced that it was divesting its pension fund holdings in companies which manufacture cluster munitions after a series of public criticisms, but did not extend this move to other weapons companies.(19)

Links

Dutch NGOs Netwerk Vlaanderen and BankTrack have a wealth of information on the (un)ethical activities of banks all over the world.

Which? magazine?s campaign for better deals for banking customers and reform of the banking system is at www.weownthebanks.co.uk

For ongoing, entertaining, incisive information on tax dodging www.taxresearch.org.uk

www.rethinkingfinance.org is a new campaign website by an international group of civil society organisations.

References

1 Northernrock.co.uk February 2009 2 Guardian.co.uk business pages, 1st March 2009 3 www.bbc.co.uk 7th March 2009 4 www.bankofireland.ie March 2009 5 Hoovers.com March 2009 6 Barclays press release, November 2008 7 E.ON press release, 18.11.2008 8 RBS press release, 2.3.2009 9 Ethical Performance, January 2009 10 Telegraph, 10.2.2009 11 RBS press release 17.2.2009 12 International Herald Tribune, 14.3.2008 13 HBOS Annual Report 2006 14 Barclays Annual Report 2007 15 www.nationwide.co.uk, March 2009 16 Guardian newspaper 6.2.2009 17 Guardian newspaper 11.2.2009 18 Netwerk Vlaanderen/Banktrack December 2007, Bank Secrets: Banks and their Alarming Investment Practices 19 UKSIF spring 2008 newsletter 20 The Scotsman, 14.8.2008 21 Employers' Law magazine, 14.11.2008 22 Bank of Ireland Asset Management brochures, December 2008 23 The Independent, 24.8.2008 24 Netwerk Vlaanderen 'Explosive Investments,' February 2007 25 http://www.lloydsbankinggroup.com/about_us.asp February 2009 26 Hemscott.com, February 2009 27 www.financemarkets.co.uk 21.1.2009 28 Guardian, 21.5.2008 29 Associated Press "Stock deal buys time for gov't to unwind Citigroup," 28.2.2009 30 False profits: how Australia?s finance sector undervalues the environment. ACF 2006 31 WRM Bulletin, April 2007 32 Forest Peoples Programme November 2008, "HSBC and the Palm Oil Sector in South East Asia: towards accountability" 33 Times newspaper 29.7.2007 34 Tata Motors Annual Report 2007/8 35 www.iccwbo.org, March 2009 36 northernrock.co.uk February 2009 37 http://www.which.co.uk/reviews/current-accounts/page/when-to-switch/ viewed 24/3/08