Bank boom ends
I am not surprised there has been a sharp fall in the HBOS share price this morning. The squeeze on its margin in retail banking was very pronounced. Profits of its retail banking business fell pretty sharply and are now smaller than those of its corporate banking operation (which is astonishing for a bank whose core is the old Halifax building society).
When you add that to what Hector Sants, chief executive of the Financial Services Authority, said to me this morning about how the cost of money for banks has risen on a permanent basis, well it all adds up to a pretty gloomy outlook for banks’ profitability.
For banks dependent on providing mortgages, loans and other banking services to millions of British consumers, there has not just been a downturn in the cycle – but, as Sants pointed out, the prospects for them have become altogether more dull on a permanent basis.
Sants himself is rather pleased about that. The end of the era of cheap debt means that fewer of us will be tempted to borrow too much.
But it probably means that the owners of banks, their shareholders, will receive lower returns. And it may well slow the growth of the economy for some years.