Proof of the old adage "money goes to money" has been in plentiful supply this week. On top of news of record profits from several of the big banks, comes a survey showing that they are the best businesses at making money out of their customers.
OK, so UK banks are beaten by those in Italy and Spain, which last year managed to make profits of £89.96 and £84.49 respectively from every one of their customers, but they didn't do a bad job of parting us from our cash in 2005. Research by software company Group 1 shows that for every account holder the banks made £75, up from £66 in 2004.
In contrast utilities firms made £59.10 a customer; retailers, £50.90; mobile phone companies, £39.40; and general insurers, a mere £35.10.
Current accounts may cost money to provide, but for the banks they are loss-leaders that allow them to cross-sell other products, as well as to charge penalty fees when customers break the terms and conditions. It is a combination of the two that Group 1 puts down to their success.
And the big banks have continued to make money from the majority of their customers this year, with HSBC this week announcing half-year profits of £6.7bn, HBOS reporting it had made £2.65bn in the same six months and Lloyds TSB pocketing £1.78bn. Barclays, which reports later this week, is also expected to announce a healthy balance sheet.
But there are clouds on the horizon. The OFT has already cracked down on late payment charges for credit cards and is eyeing the fees the banks levy on unauthorised overdrafts. The banks may make as much as £2bn a year from penalty fees, so any caps on them will be bad for business.
On top of this the UK's consumers - now collectively £1 trillion in debt - have started to struggle to meet their repayments. HSBC, Lloyds and HBOS have all increased the amount they put by to cover bad debts, with HBOS upping its provision to a staggering £864m. Yet it has fared better than Alliance & Leicester, which last week reported falling profits caused by a 60% rise in bad debt provisions, and the internet bank, Egg, which said its customers had lost it money in the first six months of this year.
Obviously banks don't like losing money, so most have already moved to tighten their lending criteria, being more careful about which customers they offer loans and credit cards. Lloyds, for example, has chosen to target its existing customers because it has a better idea of their financial position. The banks have also started to take notice of the burgeoning number of consumers turning to bankruptcy or individual voluntary arrangements (IVAs) to escape their debts.
Yesterday the FT reported HSBC's "anger" at companies that market these options to consumers, quoting the bank's new chief executive, Michael Geoghegan, as saying he was concerned by "non-regulated advisers who are advising people, and charging for this advice, to suggest that people should file for bankruptcy".
Although he may have had his company's profits in mind, he had a point. Bankruptcy and IVAs may seem like the easy way out, but there are repercussions - for a start it is much harder to borrow money in the future. And as the banks become less willing to take risks on customers, it is likely to get harder.
Agencies such as the Consumer Credit Counselling Service and Citizens Advice are a better first port of call than debt advice companies, because help is free and they have nothing to gain from advising you to take action. Often, speaking to the bank and coming up with a way to repay debts in full, perhaps over a longer period of time, may be a better option than having debts written off - however frustrating it might be to know you're adding to its profits.
