Comment: Second spoonful of sugar a welcome sweetener

By TERRY MURDEN
Published on 20/07/2012 00:00

AFTER the recent spate of scandals, Britain’s banking sector was desperately in need of a lift.

So two announcements in a week designed to break the mould and rebuild its reputation will shift focus for a little while on some of its better practices.

Marks & Spencer kicked off by outlining ambitious plans to attract a million customers to its nascent bank, dubbing its new-born as “New-Fashioned Banking”, a cute and deliberate attempt to kick the wounded older banks where they are already hurting.

Peter Marks, chief executive of the Co-operative Group, continued the theme yesterday, describing his £750 million acquisition of branches and a mortgage business from Lloyds as “the biggest shake-up in high street banking in a generation”.

Clearly, both companies want to cash in on the growing mistrust in the traditional banks and their timing could not be better with the Libor and IT debacles adding to customers’ outrage. The Co-op has seen a 54 per cent growth in applications to switch from other banks in four weeks, proving there is an opportunity to be 
exploited.

But this is not a one-way street. M&S Bank will benefit from broadening its existing financial services offering but it is a front for HSBC. Profits will be equally divided, but HSBC has 100 per cent ownership.

The Co-op will see its banking business balloon to 10 per cent of the market, but it will have to prove it can continue to offer competitive rates and handle the extra demands that prompted concerns at the Financial Services Authority and contributed to doubts about whether an agreement would ever be reached.

There remain a number of issues to be resolved. The new banking landscape becomes more complicated with Lloyds in Scotland disappearing and the group represented by Bank of Scotland. The assets moving to the Co-op will operate initially under the TSB brand, but that may eventually be phased out. On a practical level, it has yet to be determined how those Lloyds customers with their accounts in England will manage their day-to-day banking in Scotland. A financial inducement to switch to Bank of Scotland looks the most likely outcome.

For now, the Co-op appears to have pulled off a surprisingly cheap deal, much less than the mooted £1.5 billion initially expected. Rival bidder NBNK claims the government and therefore the taxpayer has been short-changed and that it would have offered more. Lloyds, however, preferred a buyer with a banking pedigree and which could achieve the scale required to meet the authorities’ demands.

All sides in the deal appear satisfied with the outcome, not least the Treasury which will see this as a key milestone in returning the part-nationalised banks to good health and to creating more competition.

Rarely has ‘end of an era’ been more true

SIR Ian Wood has been a presence in the Scottish business community for probably longer than he cares to remember. In his 40-odd years at Wood Group, he managed to spread his influence across many fields of activity, but his major contribution has been to build one of Aberdeen’s biggest and best-known companies.

His retirement as chairman of the eponymous oil services firm, announced yesterday, therefore marks the end of a particularly fruitful era which has seen his one-time fishing boat repair company turned into a global player in a thriving industry and a key constituent of the FTSE-250.

Sir Ian’s vast wealth gave him good cause to ease off the accelerator, but he never shied from a challenge. His chairmanship of Scottish Enterprise was an example of his indefatigable enthusiasm for Scotland and his willingness to contribute to its well-being beyond his immediate interests.

Chief executive Allister Langlands has shareholder backing to step up to chairman while he is replaced by another insider, Bob Keiller, also an oil industry careerist who is little known to the City but who has the credentials to take the company forward.

He will need to be on his mettle as there is word that predators may be circling. It may just be the market talking, but the group would be a tasty morsel in a sector that is among the few that continues to attract mergers and acquisitions activity.