Monday, 30 January 2012

The World is more than enough for western banks and insurers



The World's Favourite Bank, HSBC, continues its retreat back to its roots (see http://www.itsafinancialworld.net/2011/05/hsbc-goes-back-to-its-roots.html), with the annoucment of its withdrawal from Central America by selling its businesses in Costa Rica, El Salvador and Honduras to Colombian banking group Banco Davivienda. This comes on back of its withdrawal from retail banking in the US (http://www.itsafinancialworld.net/2011/08/hsbc-withdrawing-from-us-retail-another.html) Russia (http://www.itsafinancialworld.net/2011/04/hsbc-to-quit-russian-retail-banking.html) Chile, Hungary and South Korea. It has now also announced that it is selling its Thai business to Bank of Ayudhya.

This fundamental shift in strategy by HSBC announced last year by Stuart Gulliver represents a general trend across the Financial Services sector away from world domination or 'everything everywhere'  to a strategy far more spreadsheet driven, where decisions are taken on the basis of whether  in a particularly country a dominant market position can be taken and, if not, either not entering or withdrawing if already there. HSBC is not alone in this, Aviva has announced the sale of its operations in the Czech Republic, Romania and Hungary to Met Life.

How much of these strategies are driven by the need to rebuild balance sheets following the financial crash and the imposition of regulations, such as Basel III, Solvency II and the UK's Independent Commission on Banking Report,  requiring far higher levels of capital to be held, or the need to meet shareholder's short term needs for a return on capital versus a lack of pioneering, entrepreneurial, long-term vision will only become clear in retrospect. Is it yet a further sign of the decline of the mature western economies? It  certainly not the strategy being adopted by the emerging economies such as China with its long term investments into Africa, or even Australia with the likes of ANZ making strategic investments into Asia.

The latest announcement from HSBC will certainly not be its last. The ramifications of the financial crisis continue to reverberate across the globe.

Tuesday, 24 January 2012

Transaction Tax 'will send a signal' says EU Commissioner Barnier



Michel Barnier, the silver-haired Frenchman, spoke to The City in the ancient Guildhall in London. This talk, he will have known, was not to a friendly audience. Like so many of his fellow countrymen's leaders, the talk took the form of an academic lecture with the audience being students who really didn't understand the importance and the point of what he was saying. Very early on in his talk he nailed his flag to the mast with the statement that monetary union without economic union isn't possible and that the EU had come to that conclusion ten years too late. (It was just a shame that the proponents of european monetary union hadn't been listening to the many economists who at the time had said that to bring together countries into a single currency where their economies were developing at different paces was madness. You didn't need to have a Ph.D in economics to work that out!).

Platitudes were said to calm the hostile crowd - the UK needs to be in the heart of Europe/Europe needs the UK and the UK needs Europe. He even went as far to say 'There is no plot to undermine the City'.

On the question of David Cameron's veto Monsieur Barnier was quite clear. If there was an exception made to protect the Financial Services sector, then another country would be asking for an exception to protect the automotive or mining or tourism. Strangely he didn't mention agriculture.There could be no exceptions - there could be only one rule book.

His initial argument, during his lecture and before questions, for the Financial Transaction tax was that the banks had required state bailouts and that therefore the banks should pay for having those bailouts. He did not acknowledge that most of the banks that received state bail outs will not actually pay the FT tax and that most of the banks that will pay the FT tax did not receive state bail outs. Indeed over 70% of the FT tax will be paid by UK-based banks and with the French looking to exclude the tax on their bonds this percentage could rise even further. In a revealing Freudian slip, Monsieur Barnier stated that the FT tax will be imposed on the UK against its will. At the end of his lecture, realising what he had said and before questions he hastily re-stated that the FT tax will NOT be imposed on the UK against its will.

During the question and answer session he abandoned this argument when he had been challenged by a questionner that there was an industry that had received state bail outs for the last forty years and would he now introduce an agriculture tax? Needless to say this question was ducked and he complained why whenever he came to London did the question of agriculture always come up? (It couldn't be anything to do with Britain being the major contributor to the Common Agriculture Policy could it?). His argument first shifted to the point that a transactions tax was not novel, that Hong Kong had one (and much lower other taxes) and the US had one too. He also argued that France, Spain and Germany were strongly supportive of the tax (well they would be as they will hardly pay any). In a final act of desperation he argued that public opinion was that bankers were paid too much and that this opinion was the driving force for the tax and that this 'modest tax' (even more modest when you don't have to pay it and your competitors do) should be seen as sending a signal to the bankers.

With that, students educated, the EU Commissioner left The Guildhall to go to his next important meeting.

Tuesday, 17 January 2012

Customers love the banks who charge them the most!




In a very interesting study by the consumer magazine Which? it turns out that the two most expensive financial services organisations to have an overdraft with are First Direct and Nationwide Building Society. These two organisations also have the distinction to have two of the highest customer satisfaction and customer advocacy scores amongst all the banks. Two conclusions could be drawn from this. Firstly that customers want more than anything to have good service and that they are prepared to pay for it. This would be good news for the banks and particularly the alternatives to the Big Five such as Virgin Money and Metro Bank who want to differentiate themselves on customer service, as it would be yet another proof point that good customer service can lead to higher profits. The other conclusion, and the one that Which? draws to is that most customers don't understand the fees that the bank charges them and therefore don't have a basis to compare fees between banks. Or simply that they don't care.

The Which? report comes on the back of a study by PwC into digital banking that comes to the conclusion that customers will be prepared to pay for digital services and that digital banking will becoming the dominant way that customers bank by 2015. Whilst this may be the case, as less and less customers use branches and less frequently the cost of branch banking will soar. This will either result in significant branch closures and the pressure to introduce differentiated pricing significantly increase, whereby the cost of banking in the branch will become higher than online. This will naturally impact those least able to afford it. Of course the banks have tried this before with the brave trying to introduce charges for using a teller, but rapidly withdrawing this when the competition didn't follow suit. However with the introduction of new regulation, the requirement to hold greater levels of capital and increasing demand from consumer groups, such as Which?, for greater transparency around banking fees inevitably the days of so-called 'free' banking are numbered.

Monday, 9 January 2012

Trickle becomes flood as bankers leave the UK industry



What started as a trickle of banking and financial services executives choosing to leave the UK Banking industry has become a flood over 2011. Whilst many of the public and bank-haters may think that this should be the subject of rejoicing, there has been a very serious loss of talent and many years of experience that has left the UK banking industry or gone abroad. The list of retail banking executives who have exited UK banking include:


(see http://www.itsafinancialworld.net/2011/04/musical-chairs-uk-banking-world.html )

There has also been a flood of Banking IT executives who have chosen a different career or a different geoegraphy. The list includes:
  • Gavin Michael - Retail CIO at Lloyds Banking Group who left to join Accenture on the West Coast
  • Ann Weatherston - CIO at Bank of Ireland moved to Melbourne to take up a similar role with ANZ
  • Jayne Opperman - Retail CIO at Lloyds Banking Group moved to Melbourne in a CIO role at ANZ
  • Clive Whincup - Service Delivery Director at Lloyds Banking Group moved to Westpac in Australia to take up a CIO role
In addition there are also the likes of Marion King, CEO of VocaLink (the banking payments processor) who has also left the Financial Services industry.

Such a wave of departures, particularly of so many women, can hardly be good for the UK Financial Industry. It also raises the question of why so many people would take such a big step ( a number of them deciding to move halfway round the world)? Certainly the likes of Vince Cable have rallied the public to despise bankers and made it increasingly unattractive to work for a bank through both financial penalties and through continual attacks on their integrity. The increases in the tax regime has also meant that countries such as Australia, where traditionally the tax system was, at best, comparable to the UK, has now become far more attractive. Along with the Four Pillars in Australia remaining independent of government ownership and growing profitably there are many reasons for executives wanting to go to Australia.

The tax regimes and the growing banking sectors in Singapore and Hong Kong make these cities even more attractive to bankers who want to get on with the job of providing banking services to customers without unnecessary scrutiny and raiding of the wallet by governments.

It is highly likely that this won't be the end of the exodus from the industry. The implementation of the ICB recommendations will continue to make the UK banking industry an unattractive place to work, particularly for those with the freedom to work elsewhere. This can only be good for other countries and will, in the long term, cost the UK financial services sector dearly.

Tuesday, 20 December 2011

Is the Northern Rock decision good for banking?



With the recent announcements that Northern Rock is to be sold to Virgin Money is this decision good for banking and good for the consumers?

The decision, from the Government's perspective, is not only about recouping some of their investment (not as much as they would have liked), but also about increasing competition in the retail banking sector.

Whilst the National Audit Office has launched a "value-for-money" study into the sale of Northern Rock to Virgin Money, this will not halt the sale. Virgin Money will take the keys to Northern Rock at the beginning of January. We have to begrudgingly admire the move  by the serial entrepreneur and self-promoter, Sir Richard Branson, that once again he gets all the credit and press attention for a deal but actually puts little of his own funding into the deal and will rapidly get his money back when he gets access to the excess capital in Northern Rock.

Putting aside the potential bargain that Northern Rock represents for Virgin Money, what is its potential for shaking up the retail financial services market?

With the branding and the products that make up the Virgin Group the potential for Virgin Money to disrupt the retail banking market are high - certainly a lot higher than the other players who looked at purchasing Northern Rock. The continued convergence of telecommunications and banking driven by the consumer demand for mobility, combined with the increase in gaming and  the expectation of entertainment, Virgin Money has the opportunity to present a real alternative to the much discredited high street banks. Appealing to a younger, more tech-savvy customer base, the future high earners Virgin Money could have a long term impact on the profitability and growth of the traditional high street banks. By creating a physical presence on the high street, something Virgin Money has not had to date, this will allow it to move into financial products where customers still need the reassurance of the face-to-face experience to purchase, but doing it in a physical outlet that reflects the Virgin brand. Whilst the banks have tried to provide a new branch experience they have always been held back, and will continue to do so, by their brand and what it represents.

Of course whether Virgin Money lives up to this potential is down to the execution of the integration with  and transformation of Northern Rock and this shouldn't be underestimated. But Virgin Money finally has the opportunity with this deal to do what it has always set out to do and that is be a real consumer-centric alternative to the high street banks.

Thursday, 24 November 2011

Wanted: CEO for UK Retail Bank


With the news that the RBS Retail Bank CEO, Brian Hartzer is to return to his native Australia to take up a similar role with Westpac and to be groomed as Gail Kelly's replacement, he is but just one more executive to leave UK Retail Banking. He follows Deanne Oppenheimer (Barclays returning to her native Seattle - see http://www.itsafinancialworld.net/2011/09/resignation-of-deanna-oppenheimer-end.html ), Helen Weir (Lloyds Banking Group - left when Antonio Horta-Osorio joined as CEO), Lynne Peacock (NAB), Joy Griffiths (Lloyds Banking Group - left retail banking to become CEO of Experian Analytics - see http://www.itsafinancialworld.net/2011/02/joy-griffiths-leaves-lloyds-banking.html ) and Andy Hornby (HBoS - though whether this was a loss for Retail Banking is far less apparent).

Without resorting to the over-used Oscar Wilde quote, to lose this many Retail Banking CEOs does not look to be just chance. What is it that is driving these talented executives to leave UK Retail Banking?

Certainly retail banking in the UK is becoming one of the most heavily scrutinised and regulated banking sectors anywhere in the world. This is leading to executives spending more and more of their time talking to regulators and politicians rather than spending their time on running their business. The ability for talented executives to make a difference, to reinvent the industry and to service their customers in a way that they deserve to be treated is becoming increasingly difficult.

The leadership of the banks is also changing. Whereas the likes of Lloyds TSB, Barclays and HSBC used to be led by executives, such as Sir Brian Pitman, who had risen through the ranks of retail banking and understood the industry, the UK banks are now all led by former investment bankers, who are not passionate about retail banking, for whom serving the consumer and the small business is not second nature and whose vision for their banks is articulated in terms of aggressive ROI targets, which leaves the traditional retail banking executive spending large proportions of their time educating and managing their bosses about the business of retail banking rather than being able to focus on their customers.

It is also true to say that not many people nowadays would want to admit at social events that they are a banker, not if they don't want to end up on their own for the evening! The prolonged pillorying of bankers undoubtedly has an impact on individuals however thick-skinned they may be. In other geographies the role of the banker is far more respected and prestigious.
For the ex-pats who have joined the UK banking sector, and even for many British citizens, the changes in the bonus systems and the introduction of the 50% income tax band have all made the UK a far less attractive place to work and therefore, where there is a choice, moving abroad or back home can be very attractive. Whilst only a few years ago the tax regime in Australia appeared to be more onerous than the UK that situation has been reversed and for both Brian Hartzer and, even more so for Deanne Oppenheimer, going home has significant financial advantages.

Brian Hartzer isn't going to be leaving RBS for a while but who are the potential candidates to replace him? Already the speculation has started.  Will a UK-based candidate be found? Could we see the return of Mark Fisher from Lloyds Banking Group back to Edinburgh? It is very unlikely that we will see the return of Helen Weir, Lynne Peacock, Deanne Oppenheimer or Joy Griffths. Of the up and coming executives Nigel Hinshelwood, COO of HSBC UK, must be in the running, but given the nationalised, increasingly UK-focused nature of RBS would that be an attractive option?

Given that any UK-based executive knows what the UK retail banking market has become maybe the easiest option for RBS is to look abroad and for their next Retail Banking CEO.

Barclays COOs/CIOs joined at the hip? ANZ doesn't agree

In an interesting move Barclays Global Retail Banking COO, Shaygan Kheradpir, has announced that the COO and CIO of each of the business units within the Global Retail Bank ( Barclaycard, UK Retail Banking, Barclays Africa and Western Europe) will jointly run their businesses and report to their CEO as well as to the GRB COO. This is sending a very clear message that, for retail banking, IT is as important as operations and that only by jointly working together can they succeed.

One can only assume that this is a move to change the behaviour often seen in banks where IT is seen as the whipping boy of Operations, the department that holds back the business from evolving and competing and the recipient of a lot of finger pointing.

In many banks and other financial services organisations IT reports into Operations and is not represented on the Executive Committees of their business units. This move by Barclays firmly places IT at the top table. It represents just how much more banks are dependent upon IT to be competitive.

Commonwealth Bank has gone one step further and has their CIOs reporting directly to the CEO, such do they see the significance of technology to the success of their banks.

Too often recently there have been tales of how IT has stopped the business working. You only have to look at the woes that National Australia has been enduring and the impact on the business of systems not working.
See http://www.itsafinancialworld.net/2011/04/deja-vu-as-nab-systems-down-once-again.html Interestingly NAB has a structure whereby they have split responsibility for IT between effectively BAU (Business As Usual) and New Technology with Adam Bennett as CIO and Christine Bartlett, the executive programme director of the NextGen technology upgrade programme.

However Barclays is clearly demonstrating how technology can help lead a business. First out with the tap and wave debit card in the UK and first out in the UK with the mobile wallet on a phone with their joint venture with Orange (see http://www.uswitch.com/news/communications/orange-and-barclaycard-launch-mobile-phone-payment-scheme-800550966/ )

For this joint responsibility to work effectively requires a special type of COO and a special type of CIO. The head of Operations will need to have far more than just an appreciation of IT than has traditionally been the case. Equally the CIO will need to have a deep understanding of how the business works and how IT can enable the bank to compete. Traditional CIOs who have come from an IT Service Delivery, focussed on keeping the lights on, may struggle to perform this role. The type of CIO required for banks is clearly evolving. This is discussed further at http://www.itsafinancialworld.net/2011/10/new-type-of-cio-is-required-for-todays.html
This dual leadership can only be seen as a temporary measure until enough executives emerge who can really master both banking and technology - people like Shaygan Kheradpir, whose last role was CTO at Verizon, and is an example of the Renaissance Man which is needed to manage banks in the 21st century.

In a move against the trend ANZ has announced that Anne Weatherston the CIO will no longer report directly to the CEO, Mike Smith, but will now report to Alistair Currie, the new COO, whilst still retaining her position on the management committee.

Shortly after the ANZ announcement Westpac has followed suit in going against the trend and has announced that they will not only introduce one COO but two and have a CIO reporting into each one, removing the CIO responsibilities even further from the CEO and the board.

Only time will tell whether either ANZ's and Westpac's or Barclays' and CBA's models are right. It will be interesting to see and costly for the banks that have got it wrong.

Monday, 14 November 2011

Are those annoucing the death of the branch false prophets?




The death of the bank branch has been predicted more times than sightings of Elvis Presley have been announced since his death.  It started with the introduction of ATMs or cash machines, was reiterated with the arrival of call centres, declared to be inevitable with the emergence of the internet and the giant leap forward of Web 2.0 has been welcomed by many commentators and consultants as the final nail in the coffin. But as like in all the good horror movies since the pale, thin, mud strewn  hand of Sissy Spacek shoots up from the grave in ‘Carrie’  no sooner is the bank branch declared dead than it springs back to life, reinventing itself whether it is by becoming a coffee shop, a children’s nursery, an airline lounge or, more recently, an amusement arcade or, in the case of Metro Bank, a Las Vegas casino.
So are the soothsayers, the banking visionaries, correct that branches are dead and that anyone who suggests otherwise is either a dinosaur, very, very stupid or should be taken away by the men in white coats?
Sitting in New York writing this blog it would appear to be anything but true with so many shopfronts on so many streets being new or refurbished branches with their glistening self-service machines, their comfortable sofas, their bright colours and lighting these do not look like the last desperate gasps of an endangered species. Indeed there are also lots of unreformed branches with poor lighting and high screens, so the so-called death of the branch seems to have been prematurely called.
So why is there so much written about the fallacy of bank branches and the call for them to be assigned to a museum?
Certainly there are more and more ways that customers can interact and transact with banks than simply talking to a teller or an advisor in a physical branch.  The increasing ubiquity of devices that provide digital access  that has gone from dumb terminals through laptops, netbooks, mobile phones, smart phones, tablets, NFC-enabled cards and NFC-enabled phones can lead to the conclusion that digital channels will totally replace physical channels.
This perspective is further strengthened with the almost daily emergence and evolution of  different ways of connecting in the digital world whether it be using email, SMS, Facebook,  Twitter or some other increasingly enclosed environment.
However the reality is that, whilst the take up of these new ways of communicating and living our lives is accelerating, most of these have not  yet become mass market nor have they become a way of life for the majority of people.  On the other hand for many of  the people who  make a living out of predicting the future of banking the use of these tools has become second nature, as indeed it has for most of the people within their circles.  The reality is that they are not representative of the mass market and that, whilst they may quote figures that show that the take  up of new technology is faster than it has ever been before, they talk about banking as seen through their own lens and not necessarily that of the majority of customers.


Does this mean that these forecasters should be ignored? Absolutely not - for what they say makes a lot of sense and is highly appropriate challenges to the existing banking fraternity. It cannot be disputed that for a long time the most powerful voice in a retail bank has has been that  which belongs to the owner of the branch network. It is the branch network that has absorbed the majoirtiy of the discretionary investment funding for the banks. The agitators are arguing that this economic inbalance between branches and other voice and digital channels needs to be addressed and there needs to be a recognition that branches already are just one of the channels and ways for banks to service and transact with customers. That doesn't mean that branches will go completely away, because there will always be some customers that want to transact with a real person in a physical space that is private and away from distraction. For some segments this desire to transact in person is stronger than for others. For instance the branch-centric, locally empowered model that Handelsbanken operates in the UK focussed on SMEs and mid-corporates is highly successful both in profitability and customer satisfaction (see http://www.itsafinancialworld.net/2011/06/forget-virgin-money-or-metro-bank.html ).


These cries for revolution and major change in the distribution of economic power in retail banking should be listened to by branch-based banks, welcomed as a wake-up call and acted upon, whilst recognising that a balance between branches and digital for most main stream banks will be the right answer for some time to come.

Tuesday, 1 November 2011

The world awaits the birth of a new banking platform

Across the world, bank CIOs are watching closely the activities in the delivery rooms in Melbourne, Sydney, Swindon and Frankfurt. There is much pacing up and down and the carpets are well worn as these babies are seriously overdue. There is so much attention being paid to these four cities because CIOs across the world are holding back their own decisions until they are sure live birth is possible.

It shouldn't be underestimated just how significant the decision and, even more importantly, the delivery of a new core banking platform is. Commonwealth Bank of Australia made a Stock Exchange Announcement, not to say that they had finally delivered their banking platform, but simply to update on progress. That is how seriously it is taken; enough to move the share price of a bank.

Replacing the core banking system is the equivalent of a full heart, lungs and brain transplant, with all the risks inherent with that, and this is why no major bank has actually done this since the 1970s. Sure, there have been cases of banks being migrated from one legacy system to another , examples being NatWest's systems onto RBS's banking platform , Lloyds' systems being migrated onto TSB's, but migration onto a modern, new, agile system for core retail banking just hasn't happened.

If it hasn't happened is that because there is no good reason to make the move? It is certainly true that most established banks of scale across the world are working on systems that were initially developed in the 1960s and 1970s, when the use of punch cards and batch processing was state of the art. Many of these systems were never architected or designed with the future in mind, have little documentation and most of the original developers have either retired or gone to that great punchroom in the sky. This has left a legacy of systems which are creaky, unflexible and often have a DND (Do Not Disturb) sign above them because no one is quite sure what happens when you make a change to them. You only have to look at the week plus outage that National Australia suffered last year to see how challenging these old systems are to maintain and keep running. So when new products, channels or technologies come along it takes a lot of money, time and effort to force these creaking platforms to adapt. The business gets desperately frustrated with the CIO and complains that IT is holding back the business. You only have to look at how slow the banks have been to respond to social media and the overall digitial agenda to see how the systems are holding them back.

The challenge for every CIO facing the problem of moving to a new core banking platform is how to make the business case. Using CBA as an example, the original budget for the core banking replacement progamme was AUD$580m ($580m, £355m), which no small amount. This has now soared to AUD$1.1bn (£675m) and late last year it was announced that it was going to be another year late. They're not alone with having these challenges, Nationwide in Swindon, UK are having similar problems (though being a mutual they don't have to announce their numbers to the Stock Exchange) with the programme running far behind schedule and multiple changes of integration partners. In Frankfurt, where the programme was originally designed for Deutsche Postbank, its scope has beenextended to Deutsche Bank's retail bank following the latter acquiring the former. And still no one has the full solution out there.

The challenge with spending such astronomical numbers (particularly at a time when capital is increasingly important to the banks) is what the payback period is. Based on the numbers Commonwealth Bank quoted this week, which was that the new system would repay AUD$300m (£184m) over three years, then that suggests that the payback period is at least 11 years. If you're sitting there as the CEO or the COO of a bank and comparing an investment that pays back in 1 to 2 years versus one that no one else has succeeded in delivering and pays back in 11 years, you can see why not many banks have embarked on this journey. Brave man Mr Ralph Norris, CEO of CBA. When the average tenure of a CIO has fallen to a mere two and a half years, then it is no wonder that there aren't many CIOs brave enough to bring forth the case for replacing their core systems.

Since 2008 National Australia has been working on installing Oracle's i-Flex core banking solution. Whilst they have a live greenfield implementation in their UBank operation they will only have a foundation release  implemented in 2012 -  four years after making the decision. Costs continue to soar with infrastructure costs up a whacking 56% YOY 2010/2011 to AUD 719m (£465m), with most of that increase being attributed to the Next Generation Banking Platform.

Which brings us back to why the world looks on as the brave CIOs of NAB, CBA, Nationwide and Deutsche Bank  pace nervously back and forth in the delivery rooms waiting for their new arrival. Stock up well because, even now, it could still be a long time coming!

Friday, 21 October 2011

Is Verde just a game of 'Call my bluff'?


As the date for bids for Lloyds Banking Group's Verde continues to be extended and still there is only one bid on the table - a question that springs to mind is whether a very smart game of the TV panel show 'Call my Bluff' is being played by Antonio Horta-Osorio, the CEO of Lloyds Banking Group.

There is only one bid on the table at the moment and that is from Lord Levene's NBNK. The price being offered is considerably below what the government and Lloyds Banking Group shareholders were wanting or expecting. NBNK has also been allowed (the NBNK CEO, Gary Hoffman, was prevented from bidding for Northern Rock for twelve months after he'd left his post as its CEO) into the bidding for Northern Rock early. A move on the part of Northern Rock probably to create more competition and, hopefully, push up the price for the Newcastle-based bank. From an NBNK perspective combining both the Northern Rock business with the Verde business would ease some of the working capital concerns about acquiring Verde, since Northern Rock is deposit heavy and loans light, whereas Verde is the other way round, and it would provide NBNK with a platform to migrate Verde onto. It would also make NBNK even more of a competitor to the established banks with over 400 branches. However it would require NBNK to raise even more capital from its investors, complicates the acquisition very significantly and increases the complexity of the integration execution. Even if NBNK were to acquire Northern Rock the price being offered to Lloyds Banking Group or Verde may not be sufficient for shareholders.

This leaves the other contenders for Verde that have not put in a bid yet. Hugh Osmond, the pizza restaurants to pubs operators entrepreneur best known for Pizza Express and for paying over the odds for the Pearl Insurance business, and his Sun Capital Partners business are allegedly looking at ways to re-shape the Verde deal so that it is less capital intensive. This could mean that the pace at which the Verde accounts are transferred to the acquirer is slowed down or indeed reduced so that the funding gap is not so great. The challenge for any bid from Sun Capital Partners will be whether it is seen as enough of a 'strong challenger bank' to meet the ICB requirements for whoever acquires Verde.

The third contender is the Co-operative. With no shareholders to call upon for capital, the Co-Op would have to go to the markets to raise the capital, which is even more challenging for a mutual than a equity-based company. With liquidity in the markets extraordinarily difficult it is no suprise that there has been no bid from the Co-Op yet.

With question marks over all three contenders the final option that Antonio Horta-Osorio has is to float Verde, which has been suggested/threatened before. But how realistic is that given the markets going cold on investing in banks and capital being hard to raise. If the float could be got away would it be at an acceptable price?

Lloyds Banking Group has until 2013 to dispose of Verde, but Antonio Horta-Osorio has said that he wants clarity by the end of this year. Is this in anyone's best interests given the state of the prices for banks. Or is this all part of the elaborate game of 'Call my bluff' where having gone through both the sales and the flotation process Antonio Horta-Osorio can turn to the regulators and say that he has tried to do everything possible to meet their requirements to dispose of Verde, but there were no viable buyers, so can't I just keep them?

Update: The game has got even more interesting with Antonio going off on sick leave for the rest of the year. Now where does that leave Verde in the meantime, with an acting CEO with no vested interest in the long term future of Lloyds Banking Group?