Tesco’s withdrawal from retail banking is a victory for the status quo, says TERRY MURDEN
After the carnage of the financial crash that saw the demise of some famous names and left reputations in tatters there was much talk of a new generation of banks, including calls for a regional network devoted to simpler and more local needs.
Encouragement for so-called ‘challenger banks’ came from customers, politicians and the business community who yearned for a return to bank managers they knew at the golf club and products they could understand. Most of all they wanted competition and scale that did not overwhelm them.
At the time, I wrote a column for a Sunday paper saying this re-imagining of a less aggressive and oversized sector had some merit in bringing banking’s bloated belief in its invincibility down to earth, but it would not happen. Not in the way that the idealists hoped. Big banking was never going to go away, and would rebuild from the ruins of a financial blitzkreig.
Fifteen years on and we have seen the rise of challengers such as Atom, Starling and Metro with mixed results. The supermarkets believed they could use their own consumer dominance to carve out a share of the banking sector. In recent months that ambition has unravelled, first with Sainsbury’s and Tesco offloading their mortgage books and lately declaring a withdrawal from retail banking. The cost of having so much capital tied up in banking has simply proved too much of a burden.
A ‘big four’ seems to be the natural order, whether it’s banking (HSBC, Barclays, Lloyds, NatWest/RBS), accountancy (PwC, KPMG, EY, Deloitte) or supermarkets (Tesco, Sainsbury’s, Asda and Morrisons – though Aldi is now challenging the latter for fourth spot).
In truth we have always had challenger banks: TSB, Clydesdale and Yorkshire (which were later bolted on to the remnants of Northern Rock to become Virgin Money) as well as a nationwide network of small savings banks.
But the “majors” still rule the roost and the diminution of Sainsbury’s and Tesco are particularly painful for Scotland. Both based their operations in Edinburgh, offering some consolation for the loss of Bank of Scotland’s independence and the final humiliation served on Royal Bank of Scotland by its rebranding to NatWest and the effective relocation of its head office to London.
To add insult to Scottish injury, Tesco Bank had been a partnership between the supermarket group and RBS in 1997, but Tesco has now opted for a deal with Barclays. Tesco will receive an income for the use of its brand, and Barclays will participate in the Tesco Clubcard scheme, which is the UK’s largest loyalty programme. The retailer said the deal will help it trim its debts, strengthening the balance sheet and allowing it to be laser-focused on its core retail business.
NatWest/RBS is now applying its own laser focus to its performance following a difficult year that saw it lose its CEO and champion of enterprising females Alison Rose in the wake of the Nigel Farage fiasco.
The bank reports annual results on Friday and the market is looking for it to settle the CEO position, not least as it is being prepared for a possible sale of the government’s remaining shares. That process will draw a line under the bail-out that not only saved the big banks but ensured they would retain their dominant role.
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business