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As I See It

Beware foreign predators bearing gifts

Terry MurdenWell, who would have thought it? After the government’s artificially-induced creation of a competitive banking market it looks like the banks are about to embark on a bit of consolidation.

TSB’s new owner Sabadell is said to readying itself to lead the charge, mopping up unwanted morsels such as Clydesdale and Yorkshire banks and preparing to pick off Williams & Glyn, the carved out bit of RBS before its planned flotation next year.

I hate to say I told you so, but I have been predicting this ever since the unholy alliance of Vince Cable and George Osborne began their campaign to build more “challenger” banks four or five years ago. This was accompanied by the forced downsizing of RBS and Lloyds, and calls to break up RBS into a series of “local” banks.

Those supporting such moves have rather missed a very large point. To be competitive also means benefiting from economies of scale. Lots of little banks will lack the ability to raise enough capital to provide the sort of service the politicians and businesses demand. New banks have emerged such as Metro, Shawbrook and Aldermore, but they remain at the margins of the sector. More significant has been the growth of Virgin Money which was not new but which benefited from acquiring the assets of Northern Rock. Once again, scaling-up was a factor in making it a true competitor.

There was always a danger that in its determination to punish the banks for their past misdemeanours the government and the regulators would administer the wrong medicine. Forcing them to sell off assets merely denies them the full service offering they spent years building. For all the mistakes he made, Fred Goodwin created a substantial bank that for a time was a global champion in retail and investment banking. It provided work for thousands and contributed to the boom from which many benefited. We all cheered him and the bank on its way up.

Stephen HesterThe government’s aggressive strategy on the future of RBS was the reason why Goodwin’s successor Stephen Hester (left) was forced out. He disagreed with stripping the bank almost entirely of its investment banking function, the bit demonised by government and the public but also the division that was making most of the money and thereby helping it provide a better retail service.

Let’s not overlook the fact that when RBS loses the branches to be tied up in Williams & Glyn, the RBS brand will retreat to Scotland and be once again seen as a provincial bank (notwithstanding its continued ownership of NatWest). This may leave it vulnerable to predators. If anyone cares to research my thoughts on this they will find that for years I have been predicting that thanks to the continued aggression towards RBS it will end up in foreign ownership.

A twist in this tale is that the Spanish are leading the charge. After leaving their own economy in tatters they dusted themselves down and switched their attention to building a presence in other countries. Santander, a giant across Europe, is established on British high streets through its ownership of famous old British names such as Abbey National, Alliance & Leicester and Bradford & Bingley. If speculation in the City is to be believed its smaller rival Sabadell is hoping to follow suit.

Sadly, this is not the first time that aggressive British political policy has undermined the ownership of domestic business by allowing overseas power-players to take advantage of our unwillingness to defend our assets. It has precedents in sectors such as car manufacturing, energy, and food and drink. Think Rover (Chinese), Cadbury (American) and ScottishPower (Spanish). Now, in the name of cleaning up the banks we are leaving them exposed to foreign predators.

It is not enough for free marketeers (and I generally count myself among their number) to argue that the market should decide such things. The downside means a loss of control over decision-making, corporation taxes and, to a certain extent, regulation. There is a loss of transparency as the numbers and internal machinations get lost within the parent company.

Sooner or later somebody in Whitehall may realise that this process can only be allowed to go so far before Britain becomes little more than an international depot from which global giants despatch various goods and services around the world.

 

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