So it must have been with some trepidation that Graeme Hartop, chief executive of Hampden & Co, took on the challenge of launching the first private bank to be established in the UK for more than a quarter of a century.
Banking industry veteran Ray Entwistle approached Hartop during the credit crunch to discuss setting up a new bank with a simple USP: accommodate the commercial banking needs of high net worth individuals with a truly relationship-driven approach. Hartop, at the time managing director of Scottish Widows Bank, says the allure of something new and fresh instantly appealed to him.
“I think there was a really significant opportunity in the market and a lot of the incumbent private banks had focused their attention on wealth management as opposed to banking,” he says. “Quite a number had moved away from the relationship-driven model so there was a number of private banks changing the way that they were interacting with their clients and not having that close relationship between the private banker and their client.”
Headquartered at Edinburgh’s iconic Charlotte Square, backed by 250 shareholders and a launch capital of nearly £50 million, the bank opened for business in the summer of 2015. It has since grown to include a Mayfair office and serve some 2,500 customers.
The bank’s fresh, “no baggage” quality probably proved similarly appealing to investors, says Hartop, given the turbulence in the industry in the past decade. In January this year, it completed a £15m fundraise with stakeholders including existing investors Hampden Group. The specialist insurer took a major stake in the business back in 2014 when it was operating under the Scoban name.
As one of a team of three who established Scottish Widows Bank in 1995, Hartop was no stranger to the initial challenges faced by a new bank, but setting up Hampden required a very different approach. “Starting Scottish Widows Bank, you had a big parent sitting behind you, providing capital for the business,” he says. “But actually starting this new private bank when the economic climate and the regulatory environment weren’t really helpful to do that, it was a huge achievement.”
Perhaps his most difficult duty, particularly at the outset, was “keeping all aspects of the role moving forward at the same time”, in essence making sure the plates were spinning for regulators, investors and clients. “The regulators want to know that the funding is coming in, the investors want to know that you’ve got your banking licence, you can’t commit to contracts unless you’ve got the funding in place, and so on. It was a hugely interesting and challenging time,” he says.
The same can be said for the wider banking industry, as in the years following the financial crash of 2007-08, the UK government and banking regulators recognised the need for a different mechanism to help emerging banks get up and running, which led to the introduction of the “mobilisation” route to achieving a banking licence. This is an optional stage of the application process where the bank, once authorised by the regulator, is granted a further year to complete its set-up before starting to trade fully. Hampden was the first greenfield site to achieve a licence using this method, opening for business in 2015.
Financial results from the bank’s second full year of trading show income has risen to £3.9m, a jump of 138 per cent year on year. It has almost doubled lending to clients, as loans increased by 96 per cent to some £94.2m, and deposits grew by 35 per cent to almost £195m.
Hampden’s growth seemingly reflects the health of the UK’s private banking and wealth management (PBWM) industry. Joint research from the British Bankers’ Association and the Wealth Management Association indicates that the PBWM sector managed or administered assets of approximately £825 billion in 2016, skyrocketing 51 per cent from the total assets under administration just five years earlier. It is estimated that some 2.2 million people in the UK are private banking customers and the sector employs 27,000 people across the country.
Hampden sees itself as a differentiator in the sector, a relationship-focused outfit which, unlike many competitors, does not provide wealth management services but instead looks to work with other professional advisers to bring its clients a “grade A service” across all disciplines.
“In my view trying to be all things to all people you maybe end up not providing the quality of service across all of these disciplines,” explains Hartop. As such, Hampden focuses on its banking offering: lending, foreign exchange, money transmission and other commercial banking services for high net worth individuals, their families and businesses, although there is deliberately no fixed criteria for bringing clients on board.
“The key thing for us is we have very experienced bankers and they have autonomy to be able to decide. Firstly, the client needs to want to have a private banking relationship and be able to benefit from a private banking relationship, but then the banker needs to look at how the economics will work. It’s got to be sensible for the bank in the medium-term,” says Hartop.
Hampden recently pushed further into the mortgage market, agreeing a tie-up with broker Paradigm Mortgage Services in June. Hartop says: “Over 70 per cent of mortgages are essentially delivered through the mortgage broker channel. We wanted to gradually move into that market. That’s got off to a very encouraging start.”
With the wider banking industry undergoing a dramatic shift towards automation, and newcomers such as Atom and Monzo taking root in the digital space, Hartop says incorporating technology in the right way will be vital for Hampden as it grows. “There’s a change in the way that people bank; we’re not immune from that. We have to have good digital capabilities as well, so we’re close to launching our first app and we have good internet banking capabilities in our desktop services. So the challenge is getting that balance right between the relationship-driven approach and the more automated functions carrying out banking activity.”
Originally from Hawick, Hartop was brought up in “rugby country”, with fellow townsman and “voice of rugby” Bill McLaren as his first coach. He went on to play for Hawick and the Edinburgh Accies, before a rupture in his knee ligaments forced him to stop playing.
He trained to become a chartered accountant at Arthur Young, then was snapped up to join fledgling private bank Adam & Co, also a Ray Entwistle creation, in 1988.
Hartop went on to head up the finance team and become company secretary, moving on to set up Scottish Widows Bank in 1994. A number of colleagues from both businesses have since followed Hartop to join his latest venture, along with the latest hire, banking director Allison McCowan, who exited the UK’s oldest bank, C Hoare & Co, to join its newest.
Hartop can also enjoy the “hugely satisfying” success of Hampden scooping the title of Best UK Private Bank at Spear’s Wealth Management awards in London last week.
Currently, the bank is seeking a successor to chairman Entwistle, who will step down from the board later this year. Hartop’s aim is to continue to develop Hampden’s presence north and south of the border and “start to really challenge some of the private banks which have been around for 300 years”.
He says: “We’re still a small bank in the grand scheme of the overall industry but our balance sheet footing has grown nicely to over £300m, so it’s about developing the business, getting the Hampden & Co name out there.
“Getting our name renowned for providing that high quality of service with proper relationship-driven banking.”