Nevertheless Frumkin is confident that with a little more competition in the UK banking sector Metro can still take on the big, traditional banks.
“The world is changing, but what people want from their banks isn’t,” Frumkin adds. “We need to level the playing field so challengers of scale like us can continue to take on the big banks. We need to bring more competition to UK banking.”
Former UK bank bosses are more pessimistic. John McFarlane, Barclays’ chairman from 2015 until last year, believes there are factors stunting growth which are impossible to fix from inside a boardroom. “The problem with European banks, including the UK, is ultra low interest rates, and until that changes, not much is going to happen,” he says.
Sir Philip Hampton, the former chairman of bailed-out bank RBS, adds that a major challenge for banking executives is creating a banking system “which earns acceptable returns with a risk profile that doesn’t need government intervention”. He says the pandemic has put banks in a tricky position, dealing with government subsidised loans and regulatory dividend suspension.
“The risk profile of the loan books is now supported by the Government, [which] would obviously prefer not to have to support banking lending. Banks would doubtless prefer not to have the Government so involved either,” he says.
For the ambitious financiers eyeing a top seat at a European bank, none of this makes for a particularly appealing job offer. Although as Investec banks analyst Ian Gordon puts it, “when set against such low expectations, perhaps the CEO jobs don’t sound too demanding after all?”
“The outlook for bank revenues is dire, a function of ‘lower forever’ interest rates and the UK’s self-induced lockdown recession. The 2020/21 spike in impairments will eventually pass, but the only lever over which banks will be able to exert any meaningful control will be costs,” he says.
“For many large-cap banks it will take savage new cost-cutting initiatives even to get back to high-single-digit returns on tangible equity. The double-digit 2020/21 targets set out by the banks over the past year are now entirely redundant and will likely remain so for the next decade.”
The next generation of bank bosses will also be tasked with improving the industry’s poor public image, which remains damaged by the 2008 financial crisis as well as by numerous high-profile scandals.
Britain’s high street lenders have been at the forefront of the economic response to the coronavirus pandemic and EY’s finance expert Omar Ali, who is among the City grandees advising the Treasury and Bank of England on how to support debt-laden companies after this crisis, says this could be a major opportunity for the sector.
“Given low interest rates, many banks will be under a lot of strain, so how do they take the good that they’ve done for the economy and use that as a catalyst to create the next generation of bank?” he asks. “There’s a real chance here for a lot of the ills of the past to be consigned to history.”