Susan Rice interview: 'It's full steam ahead. It would be difficult to take back the merger'

Published on Thursday 9 December 2010 14:03

Susan Rice, the head of Lloyds Banking Group in Scotland, tells Bill Jamieson why she is so upbeat. . .

SUSAN Rice's office in the made- over grandeur of the Bank of Scotland on The Mound commands one of the best views of the capital.

Beyond the city lies South Queensferry and the Forth, and in the far distance the hills of Fife. Only on the day of my visit, thick falling snow had cut visibility to a few yards and the vista was one of unbroken muffling white.

I shivered. Without a pair of warm curtains the cold seemed to blast its way through the window. And it was hard to believe I was standing in the centre of a battleground between the Westminster government, the European Commission, competition watchdogs, a high-powered investigation panel, the Treasury Select Committee, the Scottish Parliament, taxpayers - oh, and the building's occupiers, Lloyds Banking Group.

What's the view from here? Will the Independent Commission on Banking propose an unpicking of the Lloyds TSB-HBOS merger as Clare Spottiswoode, one of its members, recently let slip? Should the proposed divestment of 600 bank branches be allowed to stand, now that the improbably named European commissioner Neelie Kroes has blessed it? Or might the coalition government push for a more unexpected break-up, while letting the "shotgun wedding" of Lloyds and the stricken HBOS stand?

Arguably more importantly for Susan Rice's business customers, what are the prospects now for SMEs and are they getting the loan finance they need?

Lady Susan Rice, brought up in Rhode Island, a one-time university professor, former chief executive of Lloyds TSB Scotland and the first woman to head a UK clearing bank, is now managing director of Lloyds Banking Group in Scotland. She is, unusually for someone who rose through the banking ranks in the past decade, a chartered banker.And whatever the low visibility from her window, she is in no doubt about the merger and where the combined group is going from here.

"The group", she tells me, "is two-thirds of the way along its integration. It is the biggest corporate integration of two companies in Europe, so it's quite a massive undertaking. We're ahead of schedule. We're making good progress in re-structuring the balance sheet and we have done a successful fundraising in the market. Our business plan sees us out through 2013 - past the re-structuring, and well into economic recovery, which I think we are in now - and that's not a bad place for us."

For many customers, it's all a bit confusing. The drive within the bank is integration. But what the customer sees outside is the re-emergence of a distinct, seemingly standalone, Bank of Scotland in the high street, with the shorn Halifax name removed to England.

"Internally it is integration. Externally, it is about the re-development of the Bank of Scotland brand. While I had a huge affection for Lloyds TSB there was something very special about the BoS name. I said I wanted to be part of the team to put the polish back into the Bank of Scotland. We want people working for the bank to feel very proud of it. It was an aspirational institution in Scotland. People had a huge love for it."

Could the merger be unscrambled? "It's full steam ahead. It's very hard to see how it [HBOS] can be taken back. If we had bought an investment bank then we could be able to do it . But we have no intention of re-opening a merchant bank."

And here we hit the hard spot for those calls for a break-up of Bank of Scotland as was. There are no functionally separate, stand-alone, businesses that could be detached from the main body of the mainstream high street banking business. It is all high street banking. Lloyds could be made to divest more branches in Scotland to create a new independent BoS. But any such group would need to be very substantial to secure the economies of scale to survive.

What may be more likely, judging by speculation around the Treasury Select Committee last week, is more divestment south of the border, creating a new, independent TSB that would both meet competition concerns by reducing mortgage market share and help the Treasury raise a substantial sum by way of a share offer and public flotation as tranches of the residual Lloyds business are sold down.

But this is some way in the future. The soonest any decision could be made on dividend restoration, says Rice, is January 2012 and all this would also be conditional on the state of the economy.

But she sees signs of a recovery already underway. Most companies that have reported results recently, she says, "are coming out with positive messages. That's a huge difference to where we were a year ago.

"And what's different compared with four to five years ago is that we don't have lots of foreign bank players operating in Scotland lending to business. They went home when the financial crisis hit, but you are beginning to see foreign institutions looking again at Scotland and that to me is a sign that things are improving."

Lloyds, she stresses, has always put emphasis on long-term relationships with business customers - citing as evidence the work of the bank's support group over the past two years in helping companies through the recession.

As for business lending, Lloyds extended 300m to SMEs in Scotland in the first half of the year and a total of 500m overall to corporates. "Trading is better than three months ago. But on investment", Rice adds, "companies are still cautious."

Another sign of a modest return of confidence are the figures from the Committee of Scottish Clearing Bankers last week showing new businesses in Scotland up by 4.5 per cent to 4,038 in the third quarter compared with the same period a year ago.

Much of Rice's time in recent months has been spent setting up a specialist team within the bank to help companies to fund energy saving and renewables. Hundreds of staff have been trained up to form a renewables unit helping firms in projects from solar panels through wind turbines to micro hydro-electric plants.

At group level, Lloyds keeps a finger on the pulse of the Scottish economy through its Scottish executive committee. "If we look," says Rice, "at salaries paid here, rent and related costs, and spend with Scottish suppliers and companies, we'll have spent more than 1 billion in Scotland this year. I don't know how many other companies look at their relationship with the country in such a direct way."

Susan Rice is far and away the most disarming voice in the reputation-battered world of banking, and an effective champion in the rebuilding of trust. In addition to her heavyweight outside commitments - Rice is a non-executive director on the Court of the Bank of England, a non-executive director of Scottish and Southern Energy - she is also leading an UK-wide initiative prompted by the Chartered Institute of Bankers in Scotland to establish professional standards in banking - "something that exists for some other professions but not for bankers".

Motionless though it all looks outside the window, there's no lack of energy within.