latest results from TSB have demonstrated that it is possible for a bank spawned
from a global retail bank to be a challenger in the market. With National
Australia keen to get rid of its northern hemisphere business, Nab UK
consisting of the Clydesdale and Yorkshire brands, could this business be the
base upon which a challenger bank is built?
have been several attempts to make Clydesdale/Yorkshire challenger brands
particularly under the leadership of former Woolwich Building Society
executives John Stewart and Lynne Peacock. After all they were the first people
to introduce the concept of speed dating for SME customers whereby customers
could meet other customers in the bank’s business centres with a view to
starting a new business to business relationship.
that in the first internet boom it was Clydesdale Bank that launched Kiboodle a
b2b portal for customers to buy and sell products using an online catalogue.
Peacock also tried to invigorate the bank and take on the Big 4 banks in the
SME sector by opening up new banking centres particularly in London and the
South East. That may be where there is the most money but it is also where
there is the most banking competition. Looser lending criteria in order to
build market share has been a major contributor to the current problems that
Nab’s UK business has with major writedowns on loans made at that time.
become a challenger?
if National Australia has failed to make its UK operations a significant
challenger to the now Big 5 banks (HSBC, Barclays, Lloyds Banking Group, RBS,
Santander) what would it take to change that?
Yorkshire Bank and Clydesdale Bank require to become significant challengers to
the major banks would be significant investments in digital and core banking to
deliver both the sort of customer experience offer the propositions that will
attract customers of the Big 5 Banks to switch to them. The banks need to
become significantly more efficient and that can only be brought about by
investing heavily in automation.
Group is expected to be floated, or preferably sold, in either in 2015 or 2016.
What will any purchaser of equity or the business actually be getting?
Bank and Clydesdale Bank bring?
Bank and Clydesdale Bank are very strong brands with a high level of customer loyalty.
According to Yorkshiremen Yorkshire is God’s country and anything from
Yorkshire is better than from anywhere else. That loyalty by Yorkshiremen to
the bank extends way beyond Yorkshire. Maximising the value of that brand and
the pride in Yorkshire could be key to future success.
Clydesdale brand is equally strong in Scotland and particularly after the
nationalisation of both RBS and Halifax Bank of Scotland (through being
acquired by Lloyds Banking Group). Should another referendum on the
independence of Scotland result in a ‘Yes’ vote then Clydesdale Bank could
become the only bank headquartered in Scotland which could attract a lot more
Scottish customers post independence.
branches, 42 business and private banking centres mainly in Scotland and the
north of England as well as having online operations. That is comparable
to the 316 branches that the still to be launched Williams and
Glyn Bank (to be spun out of RBS) will have.
and 50% of the currency in circulation in Scotland has been issued by the bank
and has the brand on them. No other bank in the UK has their customers reminded
of them every time they spend money. Clydesdale is also the first bank in the
UK to issue plastic bank notes.
£23bn the two banks are comparable in
size and efficiency with Virgin Money.
might be interested in acquiring Yorkshire and Clydesdale?
rumoured that TSB might have been interested in acquiring the business. However
one of the stumbling blocks was that there was a significant overlap in
branches in Scotland and that would significantly reduce the value to TSB of
Yorkshire and Clydesdale banks together should be an ideal arrangement. It would significantly boost Nationwide’s presence
in the north and Scotland. In return Yorkshire and Clydesdale could replace
their legacy systems with Nationwide’s new, state of the art, SAP core banking
system and significant investments in digital. Nationwide has significant experience
of integrating businesses (Anglia Building Society and the Portman Building
Society among others) and driving down the Yorkshire and Clydesdale’s efficiency
ratio from an eye-watering 70% to much closer to Nationwide’s own 50%. However one
of the downsides of being a mutual is that it is far more difficult to raise
capital and therefore as sweet as this deal might be it is unlikely to be
given the significant overlap of their branch locations even though the
combination would build a challenger with sufficient critical mass of customers
and assets to start impacting the Big 5 banks. Neither Virgin Money nor Nab UK
have a suitable banking platform to build a challenger bank on so there would need to be a very significant investment
required to get the efficiencies and customer experience to the level required
to challenge the big banks. Virgin Money has a similar cost:income ratio to
Yorkshire and Clydesdale. The level of investment required and the payback
period are likely to put off the existing investors in Virgin Money.
argument could be made for Santander to acquire the business as it would
significantly boost their presence in Scotland and the North and it has the
technology platform in Partenon that it could migrate Nab UK onto, having
already done this for Abbey National, Bradford & Bingley and Alliance &
Leicester. However Santander likes to be a distress purchaser and never likes
to pay over the odds. In addition two of the core assets of Nab UK the
Yorkshire and Clydesdale brands would not be of value to Santander and the
subsequent re-branding to Santander could lead to a significant loss of
customers loyal to the Yorkshire and Clydesdale brands. All of this makes it
unlikely that Santander will want to acquire the business at a price that Nab
is prepared to accept.
question then would be whether a foreign investor could be interested in
acquiring the businesses off Nab. Given that Abbey was acquired by Santander,
TSB will most likely be acquired by Sabadell then the large global Spanish bank
BBVA could be a contender. With its focus on being both a bank and a software
business and its recent acquisition of Simple, the US digital bank, then it
would be surprising if they didn’t consider this as their opportunity to get
into the UK retail banking market.
are all questions that the incoming CEO for the Nab UK business, former AIB CEO
David Duffy, will have to address as he prepares the business for IPO and