Tuesday, 26 November 2013

Breaking the Banks - Williams & Glyn's Bank and TSB

I wrote some time back about the policies that are occurring sotto voce on the watch of Vince Cable of firstly liberating the TSB from the dead hand of Lloyds Bank and now the imminent recreation of Williams & Glyn's Bank out of the smoking ruins of RBS, the once great Royal Bank of Scotland. This admirable trend raises two questions. The first is why is Vince Cable being so coy about this trend (dare we call it a policy?) and the second question is why not more (and what next)? 

The obvious next target would be liberating the once great NatWest from RBS's deathlike grip. 

I spoke of the TSB development back when it first launched. It had some teething problems but seems to be puttering along.

Now its the turn of the Williams & Glyn's construct to go down the launch ramp. Originally the plan was for 318 branches of RBS to go into this spinout. That was to be made up of 311 RBS branches in England (supposedly focused on the Northwest) and seven Scottish branches of NatWest. The most recent number being touted is 314 branches. I have not been able to find a list of these branches to identify how regional this bank will really be but its head office will be in Manchester. There have been vague mutterings of the new bank aiming to service small business.  It will have a 5% share in the SME market, and 2% of the current account market. After the recent revelations of RBS's predatory attitude to small business the separation will be timely indeed. 

In way of some background we would note that  Williams & Glyn’s was created in 1970 when RBS merged its two subsidiaries Williams Deacon’s Bank in England and Glyn Mills & Co in Scotland. In 1985 Williams & Glyn’s was absorbed into RBS fully. RBS, which is currently 81% taxpayer-owned, was forced to put the branches up for sale in order to comply with European rules around its 2008 government bailout. In reality the RBS structure should never have been allowed to be put together in the first place. A need for a an anti-trust rule in banking is clearly an issue that Vince Cable should be voicing more concern on. If he won't then I hereby offer the suggestion that the LibDems need an anti-concentration policy in banking and should bring it in as soon as possible. 

The business to be hived off into the new entity had total assets of £19.7 billion, customer deposits of £22.2 billion and risk-weighted assets of £13.3 billion, as at 30 June 2013. It generated an operating profit of £168 million during the first half of 2013, providing a post-tax return on period end notional equity of ~16%. A key point to note is that 4,500 employees are moving over to the new structure and the full complement will be 6,000 when a new head office is instated with all the bells and whistles (forex desk, money market desk, IT etc) that go with a full-service bank. 

The new owners of this entity were announced in September of this year after a bidding process of fluctuating intensity with various suitors (notably Santander) popping up then disappearing. The winning bid was put in by consortium of Centerbridge Partners, Lord Jacob Rothschild’s RIT Capital Partners  and Corsair Capital, whose chairman is former Standard Chartered head Mervyn Davies, and includes the Commissioners of the Church of England.  Standard Life is also in talks to join the group, along with a number of other domestic and overseas investors.

The business will be run by chief executive John Maltby, Lloyds former commercial banking chief, alongside chairman Philip Green, the former chief executive of United Utilities. Lord Davies, the former trade minister who is vice-chairman of Corsair, will be a non-executive director.

While it is being styled as a spinout in fact the separation is only a technical splitting out of a business division in the short-term. The Corsair consortium will run the Williams & Glyn’s business with RBS, preparing its technology platform, separating accounts, and rebranding the unit. The pair must also establish a new trading company, and acquire a banking licence. It will be run as a division of RBS until separation. This will be engineered through  the new bank floating on the London Stock Exchange in late 2015. 
The Church of England's First Commissioner Andreas Whittam Smith said the new bank would uphold “the highest ethical standards”. That would be a welcome change! 
The funding of the new entity  deserves some attention as a potential model for further dissection of the RBS remnants. The new bank will receive a £600 million investment through a bond issue, which will be fully subscribed, with the consortium paying £330 million in cash and the RBS markets division putting up a further £270 million. If you think RBS are selling out (yet) you are mistaken for RBS, will retain a significant minority investment in Williams & Glyn’s, of no more than 49% at the point of IPO. In essence, the consortium will act as a major cornerstone investor ahead of the eventual float.

On top of the £600m, the investors have agreed to pay up to an additional £200m dependent up
on Williams & Glyn’s share price performance in the 18 months following the IPO. The performance top-up of £200m will help fend off complaints of the government (and its factotum, RBS) of having sold too soon. 

Hopefully if all goes to plan the proceeds of selling part of the RBS stake at the IPO and later, will flow back into RBS and hopefully ameliorate the taxpayer's misery with these leftovers of Labour's flirtation with the City's worst elements.

Well may we ask as LibDems though as to what assurances there will be that W&G shares, TSB shares, the final tranches of Lloyds' shares and hopefully NatWest shares (and RBS shares many years into the never-never) will be prioritised for distribution to the public (a la Maggie Thatcher, dare I say it) instead of clients of Goldman Sachs (a la Vince Cable, dare I say it)?

And what is our policy on forcing RBS to divest NatWest? Such a disgorgement (love that word when it comes to miscreant banks) is only right and fitting in putting RBS back into its rightful perspective and getting the payback for the public in this lifetime rather than that of some future government. Vince is doing good stuff (except when he tarries with the Vampire Squid) and yet is seemingly a shrinking violet when it comes to trumpeting such moves and the LibDem role in expediting them.  


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