So what bank would you like?

By Justin Urquhart Stewart 09:05 2- Nov -2009

Just what type of banking system do we want? It’s not often we get the chance to choose, but the actions and opinions of the EU authorities on our banks may well have thrown this whole question open.

So do we want big banks? Big does not necessarily mean strong as it used to before the banking earthquake. Do we want small banks?  Small may not have the necessary cost efficiencies to survive, and also small may not be strong enough.

No, what we need are properly functional and functioning banks. We need banks which can be both scalable and provide deeper facilities, but also enough of them to provide a competitive and more efficient market.

The agreement to separate out Northern Rock’s good quality bank from its ‘manure bank’ is to be welcomed as only then will the management be properly freed to start growing the business more effectively when released from the shackles of the inherited horrors.  However, just relieving the beleaguered Rock from its position is only part of the solution and, if not followed up, could be part of the problem. What we can’t then have is a clean Rock offering market winning facilities when the competition is also hobbled.  Action needs thus to be taken, and in short order, on the other banks and most especially Lloyds and RBS.

Just think what we could create.  Edinburgh could get the once venerable Bank of Scotland back, Yorkshire could retrieve its once leading mortgage provider and regional icon, the Halifax, and even the TSB in Scotland could see the light of day again. The reality though is likely to be less bold with, I suspect, a sell-off of a few brands like Insight and branches of Cheltenham and Gloucester – not very imaginative and not enough.

How about RBS? Maybe the primary brand for England will be Nat West and the Royal name kept for North of the border and also for the still significant international investment banking business. How about bringing back Williams and Glynns, which I recall had an excellent reputation as a retail and commercial bank for maybe a premier brand? And of course, there is also the Coutts brand which, despite the devaluing of the exclusivity of the brand by its unimaginative corporate owner over the past few years, could still be saved and revived. Perhaps the staff and management should start a campaign to ‘Free Coutts?’ There will also be the niche Edinburgh based bank of Adam & Co which could be separated, but for my own personal  and totally selfish  (and probably no more than emotional) wish, I would like to bring back the Drummonds bank brand, if only to remind me of the days of the branch just by Admiralty Arch.

In fact we could have an array of great brands if we wanted, all of which could provide healthy competition if properly capitalised and managed. Of course there is the problem – who would want to buy them and who can give them enough capital and marketing drive to revive these great brands? Well of course we do know of at least two companies lurking in the foyer. Just maybe the likes of Virgin and Tesco might want to pick up such names and add them to the top end of their prospective financial ranges?

On the other hand there are other entrants as well which could also have an impact. The Chinese have already entered the UK mortgage market and a further extension of this is quite probable and, given the lack of capacity in that market, any such addition must be a benefit not just to mortgage applicants but to homeowners if transaction volumes start to increase again. Additionally there are some smaller very exciting technological innovations beginning to make their presence felt such as Zopa, which cuts out the middleman and matches lenders directly with borrowers. The line to draw from this is that commercial banking is changing – and after what has happened over the past year, then it has to be only for the better.

However, just being a retail bank today is no guarantee that you will make a decent profit. Only last week we saw the rather small fish of Standard Life Bank being snatched up by the Barclays eagle. Starting from scratch, the bank has been going for some eleven years and has cost the company apparently some £85m. Sadly the removal of another banking participant will further reduce competition and especially one which had started with a reputation for market leading initiatives and had forced some of the larger banking mastodons to react. 

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When you look at the state of our Parliamentary system it does not seem especially impressive. The ‘mother of all Parliaments’ appears to now be ‘muddle of all Parliaments’.  With the House of Commons smeared in expenses slime and the standing of certain members of the House of Lords being somewhat questionable, you can share some small element of the anger of one Guido Fawkes  404 years ago. So if you are celebrating the uncovering of the Gunpowder Plot this weekend, I think rather than throwing an effigy of the unfortunate Mr Fawkes on the bonfire, you might try and find something with a passing similarity to one of our more tiresome politicians. I am open to suggestions.  

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Well the US is out of recession, so at least that is positive. However, after $1.3 trillion of economic stimulation, the ‘cash for clunkers’ scheme and the tax credits for homebuyers, then it should have some effect – but is it sustainable? There will probably be some growth but at the speed of a sloth.

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And finally…..well it was bound to happen – a drug-sniffing dog was recovering in a veterinary hospital – with this human partner at his side – after accidentally ingesting methamphetamine.

Senior Deputy Dean Worthy said that Balu, a 4-year-old German Shepherd, had been commanded to search for a bag of drugs near where a suspect had dropped something else.  “He did his job”, Worthy says.  Balu alerted his handler to a bag of meth.  However, Balu must also have inhaled or licked up some remnants from the bag.  Hours later, he had a bad reaction.

Worthy took his K-9 partner to a veterinary hospital where he now appears to be on the road to recovery.  Worthy said that he also has a bed near Balu’s, because the dog gets separation anxiety if he tries to leave and tries to tear out his IV lines.  “We do develop a real close bond with these dogs” Worthy said.

The time to really worry is when they start to roll their own.

Have a good week.

Justin A. Urquhart Stewart
Director
Seven Investment Management Limited