World Business and Economic Analysis
World Business and Economic Analysis
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Royal Bank of Scotland came bottom of the poll with HSBC's online lender First Direct in top place
Thousands of bank customers believe the UK’s biggest lenders are failing to improve services.
Royal Bank of Scotland, HSBC, Lloyds Banking Group and Barclays have all dropped down the ranks of customer satisfaction, according to a survey of 10,000 current account holders by price comparison site uSwitch.
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The survey findings come just weeks before the results of a review of the current account market, following concerns that it lacks competition and transparency over charges.
RBS came bottom in the poll, with customers voting it the worst current account provider for a second consecutive year, in terms of satisfaction, trust, online services, value for money and rewards offered.
The state-backed bank, which the government has just begun selling off in the country’s biggest privatisation, has suffered technology glitches that have affected customers’ access to their accounts.
The poll shows that HSBC has fallen eight places in the “most trusted” category, after months of negative publicity surrounding a tax evasion scandal at its Swiss private bank and recent systems faults.
Barclays has suffered the biggest drop in overall satisfaction, while Lloyds has also fallen across a range of aspects in offering current accounts.
Competition from so-called challenger banks, such as TSB, Metro and Virgin Money, is growing.
Nicolas Frankcom, of uSwitch.com, said: “With more challenger banks expected to shake things up even further in the future, the big four clearly have more to do if they want to be the big winners.”
TSB, which was carved out of Lloyds and recently bought by Spanish lender Sabadell, has risen up the ranks, improving on customer service, value for money and trust, according to the uSwitch poll.
The government launched a seven-day service two years ago designed to make it easier for current account customers to change banks.
However, critics argue that the numbers changing banks remain low, with 1m current account holders switching last year, out of a total of 50m.
James Daley, of consumer site Fairer Finance, described the figures as “incredibly low”, noting that the switching service has had “negligible impact.
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“The main barrier is that people are just worried about something going wrong, and are not sure they see the value in better service from other providers.
“There was always a massive task ahead of the big banks to turn around organisations that were failing culturally in multiple ways — and this is a 10-year turnround.”
“What’s been alarming in the last few months is some of the banks are starting to lose patience.”
He cites Barclays as an example in ousting chief executive Antony Jenkins because he has not made enough profit.
First Direct, the online bank owned by HSBC, topped the charts, coming first in nine out of 12 categories for overall current account offerings.
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The US Federal Reserve risks triggering “panic and turmoil” in emerging markets if it opts to raise rates at its September meeting and should hold fire until the global economy is on a surer footing, the World Bank’s chief economist has warned.
Rising uncertainty over growth in China and its impact on the global economy meant a Fed decision to raise its policy rate next week, for the first time since 2006, would have negative consequences, Kaushik Basu told the Financial Times.
His warning highlights the mounting concern outside the US over the Fed’s potential “lift-off”. It follows similar advice from the International Monetary Fund where anxieties have also grown in recent weeks about the potential repercussions of a September rate rise.
That means that if the Fed’s policymakers were to decide next week to raise rates they would be doing so against the counsel of both of the institutions created at Bretton Woods as guardians of global economic stability.
Such a decision could yield a “shock” and a new crisis in emerging markets, Mr Basu told the FT, especially as it would come on the back of concerns over the health of the Chinese economy that have grown since Beijing’s move last month to devalue its currency.
He said that, even though it had been well-advertised by the Fed, any rise would lead to “fear capital” leaving emerging economies as well as to sharp swings in their currencies. The likely strengthening in the dollar would also hamper US growth, he said.
“I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” Mr Basu said. “It is the compounding effect of the last two weeks of bad news with that [China devaluation] . . . In the middle of this it is going to cause some panic and turmoil.
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“The world economy is looking so troubled that if the US goes in for a very quick move in the middle of this I feel it is going to affect countries quite badly,” he said.
After spending months priming investors for a rate rise this year, the Fed faces an intense debate at its September 16-17 policy meeting over when to raise interest rates and how to balance evidence of a resilient domestic economy against gyrations in global financial markets driven by fears of a China slowdown.
Mixed signals have recently been emerging from the central bank about the prospects of an increase this month. While the labour market is continuing to strengthen, officials are worried that inflation will be weighed down by the higher dollar and recent falls in commodity prices.
The Fed’s chair, Janet Yellen, has repeatedly signalled that she expects to raise rates this year for the first time since 2006. She has only three meetings of the Federal Open Market Committee left this year if that expectation is to be fulfilled.
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The impact of China’s slowing economy on the world was highlighted by trade numbers released on Tuesday that showed both exports and imports slowing in August versus the same month last year.
Mr Basu said the World Bank’s June forecast of 2.8 per cent growth for the global economy was now under threat from the slowdown in emerging economies such as China and Brazil as well as anaemic growth in industrialised economies bar the US.
“There is a concern in emerging economies all around in case China takes a hit,” Mr Basu said. “This is the problem right now in the world . . . Overall we are going to get into a slower global growth phase.
“All this put together and what has happened over the past two weeks with the Chinese markets leads one to believe the scenario is looking worse than it did even in June.”
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Private equity managers pride themselves on being able to spy a market. Everything is tradable, for a price, and with judicious applications of debt.
When it comes to their own stakes in these funds, private equity investors have been increasingly embracing the same spirit: buying and selling their commitments to back buyouts as if it is any other market.
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In the first half of this year, investors traded $21bn of so-called ‘secondary’ stakes in alternative investments, according to Setter Capital, an adviser in the market, with private equity funds accounting for $16bn of this volume.
“The market has almost tripled in size in five years, which is enormous growth for any market,” adds Sunaina Sinha, the founder and managing partner of Cebile Capital, also an advisory firm.
It is also unusual: this market is growing right in the middle of what is generally viewed as a rarefied asset class held for the long-term.
Investors traditionally lock up their capital in private equity funds as ‘limited partners’ for the several years often required to bring leveraged buyouts of companies to fruition. They cannot exit without a manager’s permission.
Yet in one milestone last month, Palamon, a UK-based firm, led a deal in which all of its existing backers were allowed to sell to new investors, in a single transaction.
The deal was notable both for cutting through red tape often involved in secondary deals, and for why Palamon arranged the deal.
Many of its investments, such as Towry, a wealth management group, are still growing strongly as Palamon’s funds reach maturity. New backers would allow the group to extend its investments.
This is a long way from the secondary market’s original raison d’etre a few years ago.
“The secondary market was a last-chance saloon for liquidity,” says Gregg Kantor, of Investec’s private equity fund finance team. “There was a limited pool of buyers, and sellers didn’t want to be there.”
After the financial crisis, many sellers put their stakes on the secondary market because they needed cash or were banks, required to get out of illiquid equities by regulations.
“That changed as sellers became less forced,” Mr Kantor adds. “You’re starting to see the evolution of a proper market rather than this dirty place you went to at the middle of the night.”
This in part reflects years of growing allocations by pension funds, insurers and endowments to private markets, as returns fell in more public ones.
Investors estimate the net asset value of private equity funds worldwide at about $1.3tn. Hundreds of billions of dollars more is committed to newly-raised funds each year.
As these investments mature, investment committees and trustees have become more brutal at paring back.
Says Ms Sinha: “Sellers are using the secondary market to get rid of managers they don’t like any more.”
“Instead of being stuck with a [manager] they no longer believe in, they no longer have to hold on for a 12-year period,” she says. “They can sell in the secondary market tomorrow morning.”
“We cover 220 active buyers, with 700 in total in the market today. Funds over €1bn are priced routinely,” Ms Sinha adds.
In lists compiled by Setter, private equity’s blue-chip, large buyout funds — such as CVC in Europe or Blackstone in the US — are most sought-after.
“If you look at the private equity market, it’s an industry. When you are in an industry, you need a secondary market,” says Vincent Gombault, head of funds of funds and private debt at Ardian.
If its secondaries are counted, Ardian is one of the world’s biggest investors in private equity today. It invested more than $10bn in the market in 2014.
Ardian uses a vast database to track the performance of thousands of companies in funds that may come up as secondaries, and speaks to hundreds of managers per quarter.
That is one sign of the complexity of valuing what are essentially buckets of illiquid equities. Pricing secondary stakes is as much art as science. Prices have also markedly increased recently, however.
Whereas buyers could once often snap secondaries up at a discount to a fund’s net asset value, they are increasingly trading at a premium. This is broadly bringing secondaries returns down to about 10 per cent.
That may partly reflect the funds likely to be sold. Many date from 2005 to 2008, according to the data provider Preqin. They are now mostly reaping cash from stable, matured investments.
“We are not playing the game of discounts. Discounts on what? The most important thing is the quality of the underlying assets,” Mr Gombault says.
“I prefer to pay a good price on good assets than a huge discount on bad assets,” he adds.
High prices are also fostering another trend: using debt to enhance returns on assets that the private equity manager has already levered up.
“A lot of secondary buyers are using leverage - that leverage is causing a lot of pricing pressure,” says Ms Sinha.
This again may reflect the maturity of portfolios. By the end of a fund’s life, companies in the fund may already be paying back debt, making leverage safer.
The question remains, though, how an enlarged secondary market will therefore respond if corporate default rates increase from their lows.
In that sense, there may yet be more to learn from how private equity managers do it.
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