Credit Crunch: First Anniversary

When Britain had a secondary banking crisis in the 1970s the big banks launched a lifeboat to rescue the sinking smaller lenders. Today we have a primary banking crisis. It is the big banks that are in trouble — but this time there are no bigger brethren, at home or abroad, to launch the lifeboats.

Barclays, HBOS and Royal Bank of Scotland have had to raise £20 billion of new capital to fill the holes left by bad lending. That is enough cash to buy one of their high-street rivals — though expansion is the last thing on their minds. Northern Rock, Alliance & Leicester and Bradford & Bingley are no longer in the FTSE 100, of which they were all members until they were mangled by the credit crunch. These casualties are not the secondary banks of yesteryear, the long-forgotten Cedar Holdings and Keyser Ullmanns, but Britain’s primary household-name banks.

The profits of the Big Five banks collapsed by £11 billion in the first half of this year. The big Scottish lenders are not even paying a cash dividend. Banks are trying to offload assets to keep their gunnels above the water. They are too busy baling to rescue anyone else. They are firing flares to attract their own rescuers.

So troubled banks, however large, have been forced to seek help elsewhere. Some saviours are highly unlikely. Tesco’s £1 billion purchase of RBS’s half of their personal-finance joint venture has provided the Edinburgh lender with much needed cash but speaks volumes about the state of our economy. The venture was based on the supermarket group providing the customers while RBS supplied the capital: now Tesco (worth more than most of the big banks) is better capitalised than the bank.