Terry Murden: Banking blow latest evidence of Tesco’s fallibility

Tesco Bank, which was forged out of an alliance with Royal Bank of Scotland, has been troubled by technical issues, customer complaints and a poor response to its initial in-store banking operations.

It shunned the opportunities to buy branches which RBS and Lloyds were forced to sell, preferring instead to operate its own network of branches. But, as revealed in The Scotsman’s sister title Scotland on Sunday last March, the pilots were closed after disappointing results.

A new in-store banking model is now being tested in two centres because chief executive Benny Higgins still believes selling to supermarket shoppers is a crucial part of the mix.

But all that talk of “new entrants” is proving a little hollow as those at the periphery of the banking market struggle to make an impact on the established players.

Tesco Bank now claims 6.5 million customer accounts, but it remains among the tiddlers of the sector and delayed product launches will prompt further frustration on top of last year’s IT glitch.

Its success is vital to Edinburgh, where it employs hundreds of staff, many of whom willingly defected from the badly-scarred indigenous banks or else were grateful to find work with Tesco after being laid off. In either case they would have been hoping that a bank bearing one of Britain’s most respected brand names would have offered a promising new start.

But as repeated here numerous times, those likely to succeed against the established banks will require scale and capital as well as goodwill and good branding. Without scale they will struggle to offer competitive rates. Higgins acknowledged as much yesterday when he admitted that getting off the ground was proving “very difficult, very hard” and that “you can’t assume you can be small and perfectly formed”.

Higgins left HBOS in 2007 at a time when he was said to have been unconvinced by then chief executive Andy Hornby’s desire to compete more aggressively with Northern Rock in the highly-leveraged mortgage business. Hornby, it turns out, was incentivised to sell more. Higgins, however, was proved correct and he was handed the chance to prove his model was workable when he joined Tesco in 2008.

But these latest problems will force his bosses to cast a close eye over the nascent Tesco Bank. Andy Higginson, who brokered the deal to buy Tesco Personal Finance out of RBS, left last year amid rumours of behind-the-scenes disagreements on strategy. Group chief executive Phil Clarke can do without many more setbacks.

McGrigors merger could open the floodgates

THE merger of McGrigors and Pinsent Masons is a landmark event in Scottish legal and corporate life. It is the biggest in the sector and creates a mammoth new practice. But it is effectively a takeover of the Scottish firm and will mean the loss of a historic name.

Amid all the talk of mergers in the legal sector in recent years, McGrigors has been linked with other firms, notably Eversheds in 2007. But there was no pressing desire to do a deal at the time whereas the climate for corporate work is now notably weaker.

The implications of this deal are widespread. It is the talk of the sector and the mid-tier and larger firms are wondering who might be next. The legal sector looks to be replicating the accountancy profession’s move towards domination by fewer and bigger players.

The management team in the new Pinsent Masons practice will be announced later this week but it is probable that some partners will leave, and equally possible that they may take small teams with them, either to rival firms or to set up on their own.

Pinsent Masons will also have to accept that not all clients of the two practices will agree with the tie-up and may move their business elsewhere. That is the risk in all mergers, but the scale of this deal will be more than enough to cope with any such slippage.