Terry Murden: Small players set to make a big noise in banking

Published on Friday 8 January 2010 20:59

THE £50 million being spent by Sir Richard Branson to acquire the little-known Church House Trust, a provincial bank based in England's West Country, is small beer amid the multi-billion figures bandied around the sector these days. But in terms of what it represents this is a very big deal indeed.

Branson is picking up the bank for a little more than 12m, and will inject a further 37m as he uses his new muse as a vehicle for turning his Virgin Money business into a fully fledged bank.

He gains a licence from Church House so that he can wean Virgin off its dependency on products from Royal Bank and the Co-operative Bank, to which it has loaned its name. The deal will trigger a significant shift in the balance of banking away from the old giants towards the upstart new kids on the block.

Branson has tried and failed previously when he was knocked back in his attempt to buy Northern Rock. He is expected to try his luck one more time and will be looking at other assets, notably the branches being offloaded by Lloyds and RBS under orders from the European Commission.

This year is likely to prove a turning point in the structure of the banking sector as Tesco Bank develops its product range under Benny Higgins and others step into the fray. The City analyst Sandy Chen has indicated a desire to build a bank and Ben Thomson, the Edinburgh-based investment banker, has been linked with the Lloyds TSB branches.

Of the established players, National Australia Bank and Santander look the more obvious candidates to build on their existing chains.

One new suggestion is Brazil's Itau Unibanco. Not only would that be representative of the new names on the high street it would also reflect the growing emergence of the so-called Bric (Brazil, Russia, India and China) countries in the western economies.

KPMG hat-trick

CORPORATE finance may be getting back to business. KPMG believes the Scottish deals market may have turned a corner after the firm was involved in three major transactions that completed in the last month.

Teams from the firm's offices in Glasgow, Edinburgh and Aberdeen were involved in the deals, one being among the largest disposals of an owner-managed Scottish company in the last year – Brogan Holdings – while another was the chunky private equity-backed deal involving Subocean Group.

This week The Scotsman revealed the 22m acquisition of energy advisory business McKinnon & Clarke by private equity firm Lyceum Capital, another KPMG hit.

Bruce Walker, KPMG's corporate finance director, said the hat-trick of deals highlighted the potential for more to be completed in 2010 than the previous 12 months.

It's long been said that the deals market was not so much dead as on hold. Money has been building up with nowhere to go as the markets awaited the fall in values to find a new floor and a return of confidence.

There is talk of consolidation in a number of sectors, notably oil distribution, retail, legal services. We should probably see some mergers among renewables firms too as companies in this emerging sector see the merits of scaling up to tackle the capital and resources requirements that lie ahead.

All good at Aberdeen

WHAT a turnaround at Aberdeen Asset Management in the years since it almost came a cropper over the split capital trust crisis in 2003.

Martin Gilbert, its ebullient chief executive, deserves credit for the change in fortunes at Aberdeen which he has built into a fund management powerhouse. While a lot of the business is managed in London and overseas rather than in the northeast of Scotland this remains a Scottish success story amid the ruins of the financial services sector. Gilbert is now hoping to expand in the US.

As for Royal Bank, which is selling the fund of hedge funds business, the transaction follows further speculation of buyers circling its commodities trading arm in the US. The dismantling of RBS may look like a mirror image of Aberdeen's growth, but a stronger business should emerge.