Comment: Tesco Bank among the big boys now

IF EVER a week was marked by key milestones, then the last few days have presented such a series of events.The first was Tesco Bank’s unveiling of a long-awaited current account which turned the young pretender into a mature, grown-up bank.

IF EVER a week was marked by key milestones, then the last few days have presented such a series of events.

The first was Tesco Bank’s unveiling of a long-awaited current account which turned the young pretender into a mature, grown-up bank.

This was followed by confirmation that the country’s biggest law firm, Dundas & Wilson, was being taken over. Appropriately, as the year-end approaches, a case of out with the old and in with the new.

Tesco Bank is an intriguing case. Launched in 1997 when the banking sector was firmly in the grip of the established names, its first appearance as Tesco Personal Finance (TPF) looked like nothing more than an “own-label” badging of products supplied by Royal Bank of Scotland. Sceptics thought supermarket banking would struggle to make any impression, and for almost a decade TPF remained stuck in the freezer section.

Together with Sainsbury’s – which had a similar deal with HBOS – it is enjoying a steady thaw and Tesco’s current account – following its mortgage offering last year – is potentially transformational.

Under the leadership of former HBOS retail chief Benny Higgins, the bank has deliberately awaited the launch of new rules enabling customers to switch accounts more easily. As this has also coincided with the crisis at Co-operative Bank and the ongoing damage at its bigger rivals, there is every chance that it will be among the principal beneficiaries.

Tesco Bank has 6.8 million customer accounts and it is almost certain to make the most of its Clubcard offering to leverage more business. But Higgins will need no reminding that the Tesco group is suffering a few wobbles that have included a rare profits warning and the humiliating failure of its US venture. These difficulties will place added pressure on the bank’s management team to prove it can live up to expectations.

While Higgins looks toward building a new Edinburgh-based institution, the city’s older banks must share some of the blame for the problems facing Scotland’s law firms. Until the banking crisis of 2008 they could rely on the banks for a large chunk of their workload. Those ties were further loosened by the shift of control to London and the creation of new relationships.

Dundas & Wilson, acquired by CMS Cameron McKenna, is the latest Scottish scalp in a sector being led by ever-larger law firms now operating at a multi-national level. These global enterprises are emulating the accountancy sector, now dominated by a handful of players. Big is not always beautiful, as we saw with the banking industry, but Tesco Bank and D&W know that getting bigger seems to be the only way to go.

Uncertainty slows investors

THERE has been some talk of a long-awaited revival in investment activity in Scotland. New commercial, leisure and retail developments are planned in Edinburgh’s Haymarket and Caltongate areas and the premium secured for the largely unoccupied land at the Gyle in Edinburgh, reported on the previous page, has lifted optimism a little more.

However, these projects are evolving at a snail’s pace, symptomatic some might say of a wider caution. This hesitation is partly a result of the independence debate, which is said to be stifling some investors’ inclinations to put their money into Scotland.

One property specialist told me last week that investors were holding back because of the political uncertainty. Why would any big fund seeking a long-term investment put clients’ money into a market where the future monetary and fiscal arrangements are yet to be fully determined? They are more likely to invest in those regions and projects where the long-term outlook is more predictable.

This is not to say Scotland is viewed as unstable, but there are risks that need to be factored in to any investment plan and the audit industry needs to be thinking about the potential risks involved in the independence debate when assessing all companies’ prospects. The recent White Paper was notably shy on any mention of downside risks.

The nationalists argue that businesses continue to invest in Scotland and that other factors – such as Scotland’s universities and its skills in financial services and engineering – have made sure the taps have not been turned off. Investment by overseas companies is at a 15-year high. But as we saw with those foreign firms that invested in the 1980s, many of them exited as quickly as they came.

Twitter: @TerryMurden1