Examination of Witnesses (Questions 340
TUESDAY 30 JANUARY 2001
340. There is no point in my going over this
because you have told us what your answer to that is, inadequate
though it undoubtedly is. Can you tell us what profits, the last
reported profits, NatWest made.
(Mr Goodwin) The last reported profits of NatWest
were included in the Royal Bank of Scotland Group's profits at
our interim which were £2,011 million before tax, before
integration costs and before amortisation of goodwill.
341. Analysts are forecasting just last week
that last year's profits for the Big Four will be combined in
the region of £20 billion; is that about right?
(Mr Goodwin) I will take your word for it. I saw the
same article but I have not added up the analyst forecasting.
I know what the analysts say for ours but I do not know the others.
342. It is about £50 million given those
figures that the analysts are forecasting. That equates to about
£50 million every day of the year in terms of profit for
the Big Four. That is pretty large, is it not?
(Mr Goodwin) Compared with what? What would you expect
it to be?
343. They are record profits, are they not?
(Mr Goodwin) I do not know what the records for the
Big Four are.
344. You do not know?
(Mr Goodwin) I do not know what the records for the
Big Four as currently constituted would be because I have not
calculated that figure.
345. Is it not the case, Mr Goodwin, that, if
you did not offer such miserly rates of interest on the current
account relative to your rivals, your profits would be lower?
(Mr Goodwin) I do not accept that we offer miserly
346. Your profits would be lower, would they
not, Mr Goodwin?
(Mr Goodwin) If you simply paid more interest, your
profit would be lower, yes.
347. Is it not the case that you are making
fat cat profits on the back of the customers to whom you pay pathetic
rates of interest on the current account?
(Mr Goodwin) Categorically not.
348. How can you justify that proposition? You
are making record profits.
(Mr Goodwin) If indeed the Big Four profits are record,
our profits will be at a record level simply because the group
whose profits they came from has only been formed as of March
last year, so, yes, we are making record profits.
349. And we know why, do we not?
(Mr Goodwin) We are in a competitive market. Bank
profits do fluctuate through a cycle. It is generally recognised
that it is a economic cycle and now would be the time when bank
profits would be at a higher stage. We do not have to go back
very far in time to look, certainly as far as the Royal Bank is
concerned. We made something like £10 million profit in 1991.
So there is a clear cycle through which the business goes and
profitability needs to be viewed every cycle. I think that is
something which Mr Cruickshank recognised in the work which he
did. So, I think taking a profit at a particular point in time
is one point which has to be observed. The other is, what would
you expect the return to be in the capital employed in the business?
I know that some very interesting analysis which followed the
Cruickshank report was undertaken by Professor Kay but he analysed
the returns that were being made and used the Cruickshank methodology
so that it demonstrated so called excess profits and what it highlighted
was that, of the 45 business types represented in the FTSE, 44
of them were making excess profits if you used the Cruickshank
formula and that financial institutions were actually 19 on that
list. So, to me, that would point to the fact that there may be
some flaw in his methodology as to what is and what is not an
excess profit. So, when you start to use phrases like "fat
cat" and so on, I think we need to have some sense of, what
is the bench mark and what is the method of determination? I do
not say that simply to mention a number which may sound large
is of itself a proof of anything. We are very large financial
institutions. We are the third largest bank in Europe, so what
would the third largest bank in Europe make on its shareholders'
funds? I do not think you will find that many of our shareholders
say that the returns are excessive.
350. You do not think so?
(Mr Goodwin) I do not think you will find many shareholders
351. You should get into the real world. You
are paying 40 per cent less than some of your rivals on current
account. I think that speaks for itself. Can I move onto the question
of the market share current account business of the Big Four at
around 70 per cent. It has been suggested that one of the reasons
that that has stuck at 70 per cent since Cruickshank is because
of the great difficulty customers in the Big Four have in changing
banks and switching current accounts. Would you accept that if
a customer at your bank wants to switch to a rival, your bank
should actually furnish that new bank with the account details
of the relevant customer within 10 working days?
(Mr Goodwin) Absolutely. That is the target to which
we work. We do not always achieve it but that is the target.
352. You do not always achieve it, no, you do
not, do you? Abbey National have written to us complaining that
NatWest quite often take longer than 10 working days. Why is this?
(Mr Goodwin) Before we came along here, we took the
precaution of speaking with Abbey National and a number of others
to establish whether they had any outstanding issues with NatWest
and they have confirmed that they do not. That is not to say that
there have not been instances in the past. The whole issue of
pooling together information for switching is an issue across
the industry. The information does not all exist in one place
and is not always readily to hand. Actually, switching is a double-edged
sword for us. We are trying to grow our business. We need people
to switch to us. The proposition that switching is something where
there is a barrier I think is more a perception than reality and
is one that is diminishing. There have been a couple of quite
interesting surveys of late. There was one carried out by the
DTI on the issue of switching which highlighted that in fact those
who had switched did not, on the whole, find any great difficulty
in so doing. It also highlighted that something in the order of
62 per cent of our customers would not think of switching even
if it was easy and offered a price advantage to do so. A survey
has been conducted for the Competition Commission, albeit only
of small businesses, which also highlighted that people did not
find switching all that difficult in reality, albeit that there
was a perception there. We are totally committed to working with
the rest of the industry to make switching easier. It actually
suits us because once a customer has decided to leave, you must
bear in mind that the issues you are talking about arise at the
point in time when the customer comes in and says, "That
is it, can I please have a list of my direct debits. I am moving."
It does not make sense at that point for us to try and keep that
customer by holding back the list. All you are going to do is
aggravate a situation which is already past breaking point. The
customer has already decided to move. I get complaints from customers
about it when we stuff up, along with every other financial institution,
the handling of the transfers of direct debits and standing orders
between banks. The sooner we get this automated, the better. It
will cut down our costs, and I am afraid that will give rise to
greater profits under your model; it will enable us to attract
customers to the bank more quickly and more effectively and that
is good for business for us. I am anxious that we get switching
fixed because I need it to be fixed to make it easier to move
customers to us, not to stop them leaving. Once a customer has
asked for a list of direct debits, they are gone and no purpose
is served in dragging your feet to try hoping that the customer
will somehow change their mind. They do not change their mind.
All you do is aggravate the situation.
353. That is an obvious point. The point is
that it is a deterrent for people in the future, if they know
there is hassle associated with changing their account, to not
actually even bother to inquire about changing the account. You
have not met that point. Are you aware that a large survey of
around 1,000 cases was done by Intelligent Finance which demonstrated
that, in 57 per cent of cases, NatWest were not able to furnish
those details to the new bank within 10 working days57
per cent. What is the figure if you do not agree with that?
(Mr Goodwin) I volunteered to you earlier on that
we do not always meet the 10 day figure.
354. What is the percentage?
(Mr Goodwin) Amongst the people we contacted as well
as Abbey National were Halifax and Smile and there are no outstanding
issues as far as they are concerned with our handling of switching.
So, as to what may have happened, I do not know when the survey
was conducted. It could be comparatively recently. Things are
changing at NatWest. I do not demur from what I said to you. We
want to meet the 10 day guideline; we would like to make it a
shorter service level agreement if we could. We want to make switching
easier and we want there to be a perception that switching is
easier. I am not going to demur from that statement but it does
require work across the industry. It is not something that is
solely in my power to do. There is an expectation that, by the
end of this year, in fact by the autumn of this year, there will
have been another step forward in the automation of the process
to make this easier, but it is a pan industry exercise.
355. Mr Crosby, Intelligent Finance, for whom
you are speaking today did a survey and, in 57 per cent of cases,
NatWest did not make the 10 day transfer deadline. Mr Goodwin
is saying that it is not really a problem, there are no complaints.
Are you resiling from that figure and your complaint that NatWest
dragged their feet?
(Mr Crosby) I am not going to argue with the figure
because that is research we did and
356. So you are contradicting Mr Goodwin.
(Mr Crosby) No, I am saying that the research we did
on those specific cases said that 57 per cent of the cases in
NatWest were outside 10 days. What I would like to say to you
is that that is an industry wide issue, not just
357. I know it is an industry wide issue, Mr
Goodwin made that point very clearly just now, but he has said
that there are no outstanding issues. Do Intelligent Finance have
any outstanding issues about NatWest dragging their feet in 57
per cent of cases that your company, for whom you are speaking
(Mr Crosby) I am sorry, I cannot say what the expression
"outstanding issues" means in this context. What I would
say to you is that I think
358. Do you have a problem with the fact that
57 per cent?
(Mr Crosby) Excuse me. It is pretty clear that the
research we did was right at that time. I am sure that, if I checked
through all our records today, there will be a number, it may
not be 57 per cent, of accounts in transfer from NatWest which
are outside the 10 days. I am sure that will be the case.
359. Do you think that is acceptable?
(Mr Crosby) I think the whole industry has to get
better at this. It is the self-evident fact that the customer
perception of how difficult it is to transfer is the obstacle
to effective competition in current accounts. We, as an organisation,
have set our stall out to double our share of the current account
market in the next two or three years and we have a real interest
in ensuring that that happens. As Mr Goodwin said, it is all about
this automated system that is coming in at the end of this year.
I think that the 10 day period in delivery, for example, might
be something, if this system does not work that effectively and
that quickly, that might become the subject of regulation. It
is that important an issue.