Monday, 26 September 2011

Is NBNK alone going to be enough for ICB?

When the Independent Commssion on Banking (ICB) Report was published earlier in September very little detail was given as to their recommendations for creating more competition in retail banking, however they did specifcially refer to the Lloyds Banking Group Verde deal (selling the 632 branches including the Lloyds TSB Scotland branches, Intelligent Finance and Cheltenham & Gloucester) and said that  'The Commission therefore recommends that the Government seek agreement with Lloyds to ensure that the divestiture leads to the emergence of a strong challenger bank.' The Commission stated that it felt that the 4.6% share of the personal current account market along with the funding challenges of the existing deal  was insuifficient to meet this criteria abd that the deal needed to change, but did not prescribe how.

When NBNK announced that they were in discussions with National Australia about buying their UK operations a solution appeared to be emerging, however following comments from NAB to the effect of why would they sell their assets as the bottom of the market, it looks increasingly likely that this opportunity to increase the share of personal current accounts and the easing of the funding requirements (by virtue of the NAB UK deposit base) has gone away.

Whilst NBNK argues that they have improved the attractiveness of their proposition by including a major IT organisation in their syndicate, it would be extraordinary if this was seen to compensate for the loss of an existing bank to their offer.

Certainly any new entrant to the retail banking market would not wish to inherit the legacy Lloyds Banking Group systems for any length of time, since they have been built over twenty to thrity years and as the often quoted Irish joke goes 'you wouldn't want to start from here'. Any new entrant in order to be competitive would be wise not to own all the infrastructure and IT applications but rather buy services from an  organisation who's core business is IT and who can manage the peaks and troughs of demand whilst ensuring the lights are kept on.

However this does not address the demands of the Independent Commission on Banking on whoever acquires Verde. Indeed this leaves the ICB's preferred option being the flotation of Verde with a different mix of current accounts and deposits. See

The question that should be generated in the minds of the general public and the Government, as shareholders in Lloyds Banking Group,  by the NAB decision to withdraw from disucssions with NBNK is whether the haste with which Verde is being pushed through is in the best interests of either the shareholders or consumers. Selling a bank at a time when bank prices are at an all time low and encumbering a new entrant with excessive debts may not be in anyone's best interests.

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