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Social responsibility and finance - on the precipice

Date: 27 Nov 2011
Author: Mallen Baker

Lloyds TSB

When banking was boring

It used to be that banking was boring. It wasn't seen as one of the fast lanes of corporate life, although it was seen as respectable and steady. Advertising in the 1970s and 1980s used to play on the image of the bank manager as someone you could trust. Why? Because he would always have an eye to your financial well-being and would advise you carefully. If you applied for a loan and you really couldn't afford it, it would be turned down for your own good.

But the next generation of bankers were hungry to be famous for their business success, and that led the logic of maximum shareholder return into the sector - like the fox invading the chicken coop. Suddenly, they were creating new and more exotic vehicles to bury levels of risk out of sight and generate huge returns.

And, of course, they lent money like there were endless streams of the stuff and all loans and investments, however risky in theory (and high risk means mouth-watering high yields), would hold up in sufficient numbers to feed the bottom line ever-greater amounts.

Companies like Lloyds TSB in the UK were, pre-crisis, beginning to attract criticism for being staid and old-fashioned in their approach and consequently not generating the shareholder returns that some felt they should have been.

Of course, once the crisis erupted, Lloyds were looking pretty good because they were not so exposed as some of their competitors. They then completely abandoned that advantage when they - with the support of the government - acquired trouble-hit HBOS, not quite realising how trouble-hit it really would turn out to be. Defeat snatched from the jaws of triumph, but that's how it goes sometimes.

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Companies like Lloyds TSB in the UK were, pre-crisis, beginning to attract criticism for being staid and old-fashioned in their approach and consequently not generating the shareholder returns that some felt they should have been.

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