Bank hate is exaggerated and simplistic

Allister Heath
IF WE are to believe most commentators, it is an outrage that Barclays and HSBC were able to report decent profits yesterday. The main reason, apparently, is that there are &ldquo;fears&rdquo; that lending remains too tight, and that the dreaded &ldquo;bonus culture&rdquo; will return. Needless to say, had the banks reported a collapse in earnings, they would have been pilloried for their incompetence. There are plenty of problems with the banks, but yesterday&rsquo;s onslaught was excessive, irrational and illogical.<br /><br />The demand for credit has fallen. It is a tragedy that it has taken such a horrific recession for this happen; but this limited move away from the corrosive spend today, pay tomorrow culture of the noughties is the only silver lining to the present crisis. The overall supply of credit has probably also fallen, though this has almost entirely been caused by the withdrawal of Icelandic and other foreign banks as well as non-bank lenders.<br /><br />Barclays and HSBC are both lending lots to compensate for this and to grab market share. Barclays&rsquo; gross lending in the first half surged to &pound;17bn, more than the &pound;11bn it had pencilled in for the full year. The bank also lent more to small businesses than in the first half of 2007. There is simply no way that either Barclays or HSBC can fairly be accused of artificially restricting credit. Not everybody is getting the loans they want but there is no real, tangible evidence that this is any different to the way it has always been (and the collapse in ridiculous credit, such as 100 per cent mortgages, is no bad thing). The so-called tight credit &ldquo;fears&rdquo; everybody is talking about is more a case of fear-mongering.<br /><br />It is also worth pointing out that Barclays suffered badly from a dramatic compression of margins in its UK retail bank in the first half &ndash; so much for the allegations of &ldquo;profiteering&rdquo;. Its extra earnings all came from investment banking. This didn&rsquo;t stop one media outlet from claiming that &ldquo;after bringing the economy to its knees and taking billions in public bailout money, fat cats are set for a record &pound;4bn bonus bonanza&rdquo;. Yet Barclays &ndash; set to be one of the City&rsquo;s largest bonus payers this year &ndash; and HSBC did not bring down the economy, have not cost the taxpayer a penny and will be paying several billion pounds in corporation tax this year. The increased compensation they pay their staff will mean billions more payable in tax on their bonus and wage bills. Both banks will be following the new FSA and Walker guidelines on compensation.<br /><br />Those banks that did fail &ndash; Royal Bank of Scotland, Lloyds Banking Group (brought down by HBOS), Northern Rock, Bradford and Bingley and the Dunfermline will be paying limited or no bonuses this year. Critics have a stronger case with some US banks &ndash; but not those that are usually singled out. Goldman Sachs did not cause or exacerbate the recession; neither did JP Morgan. However, Citi and Bank of America/Merrill Lynch have done extremely poorly &ndash; but even in those cases we shouldn&rsquo;t tar all their staff with the same brush. Bankers who dealt in CDOs and sub-prime have mostly been fired; but some have survived and will now be pocketing massive bonuses. There will be some rewards for failure and that is wrong.<br /><br />Barclays and HSBC have both made costly mistakes but it is their shareholders, not taxpayers, that picked up the bill. They don&rsquo;t deserve to be treated as villains.