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There aren’t any challenger banks out there really

The soon to launch TSB flotation was announced the other day to general silence.

Who wants to buy into a bank or, rather, who wants to buy into a rebranded Lloyds bank?

With Lloyds’ shares faring reasonably well these days, TSB is going to be an interesting operation.

Running on Lloyds’ systems, it states that it’s a different bank as it has not been smirched with all those horrible things like Libor rigging or PPI mis-selling.  It doesn’t have an investments bank and it can be trusted.

Hmmm … proof will be in the diet once launched.

What is more intriguing, in some ways, is how different British Banking is in 2014 compared with 2008.

In 2008, we had six big deposit account institutions: HSBC, Barclays, RBS (NatWest), Lloyds, HBOS and Nationwide, with  a number of others chasing up the rear like Clydesdale and Yorkshire within the National Australia Group and Santander which was just re-organising Abbey after its acquisition in 2004.

In 2014, we have six big deposit account institutions: HSBC, Barclays, RBS (NatWest), Lloyds, Santander and Nationwide, with a number of others chasing up the rear like Handelsbanken, Metro Bank, Virgin Money.  Admittedly, the re-launch of TSB and William & Glyn’s will make a difference, but we are yet to see what difference if any.

Give me ten to one odds and I’ll bet that in 2020 we will still have six big deposit account institutions, and they will be the same six.  If the Aldermore’s, Atom Bank or OneSavings (Kent Reliance) make inroads into the core markets of the Big Four, then they will be priced out of the market or acquired.

Equally, we may have old banks relaunched but if TSB and W&G make inroads, what’s to stop a Santander or Handelsbanken buying them (apart from cultural misfits)?

And, equally, why are all of these new challenger banks opening branch-based banking businesses?  Not a single one, apart from the possibility of Atom Bank, is creating a wholly new banking flavour in Britain.  Instead, they are all competing on customer service, trust and traditional banking values.

All of that is laudable but that is exactly what most of the big bank brands have returned to with helpful banking (RBS) that is simple, personal and fair (Santander).

In fact, it’s a downright disgrace that there is not one visionary digital bank on the market yet, and I just hope that Atom Bank will be that one.   Having said that, it disturbed me a little to hear that they won’t have a call centre for banking conversations, purely for technical support if you get stuck!

So forgive my cynicism, but I’m not expecting a massive shakeup of the banking system in Britain under this new landscape.

Just the same old big four or five banks, with a bunch of terriers yapping at their ankles.

Meantime, here’s the FT’s analysis of the key challenger banks:

Profiles: a closer look at the challenger banks

History: TSB was carved out of Lloyds Banking as part of the group’s government bailout
Size: it has about 600 branches and is thought to be worth about £1.5bn

TSB The offshoot of Lloyds Banking Group is expected to be the first in a round of bank listings, with its offering scheduled for this summer.

The part-nationalised lender was forced to carve out and sell the TSB business as a condition of its £20bn bailout.

TSB has about 600 branches and a 5 per cent share of current accounts and is expected to be worth about £1.5bn.

Lloyds is expected to sell a 30-50 per cent stake, with the remainder being disposed of by the end of 2015.

Santander UK The Spanish bank has blown hot and cold on plans to float its UK business.

IPO plans: Santander is expected to float about 20% of its UK business
History of listing: it has been delayed repeatedly since 2011

Initially pencilled in for 2011, the lender has repeatedly delayed its offering as it grapples with tougher regulation and a longer economic downturn than expected.

However, the recent appointment of Nathan Bostock as deputy chief executive has fuelled expectations that the listing is back on the agenda.

Analysts expect Santander to float about 20 per cent of the UK business for up to £5bn.

BLACK AND WHITE ONLY File photo dated 25/02/77 of the then Williams and Glyn's bank in the Cheshire village of Prestbury, near Macclesfield, as the Church of England's investment arm is to have a stake in the running of 314 bank branches being hived off by state-backed Royal Bank of Scotland as part of a £600 million deal, under the deal, the Williams & Glyn business will return to the high street as a "challenger bank" to the major players in the industry, with a particular focus on small business banking - a sector seen as vital to the UK's recovery.

History: the group, which operated independently in the 1970s (pictured), before being absorbed into RBS in 1985
IPO size: the brand, which will soon be relaunched, is expected to float for more than £1.5bn

Williams & Glyn’s After a botched attempt by Royal Bank of Scotland to sell this business to Santander UK, RBS is working with Corsair, the private equity group, on a flotation.

However, the complexities involved in separating out the 316 W&G branches mean this is unlikely to happen before 2016.

W&G is the business RBS was ordered to sell following its £45bn government rescue.

Corsair paid £600m-£800m last year in exchange for an equity stake on listing. It expects the business to float for more than its £1.5bn book value.

History: launched in 2009
Size: Aldermore has lent £3bn to small businesses and homeowners

Aldermore The small UK lender backed by AnaCap, the private equity group, is considering a potential stock market listing this year.

Aldermore launched in the UK in 2009 as a lender focusing on small- and medium-sized enterprises.

It has lent more than £3bn to small businesses and homeowners and made its first profit in 2012.

Bankers expect its initial public offering to be £400m-£500m.

History: formed following a JC Flowers investment in a building society
Size: OneSavings has almost £4bn of assets

OneSavings Bank OneSavings – which was formed when JC Flowers, the private equity group, invested in the Kent Reliance building society in 2010 – has launched preparations for a potential listing this year.

The lender has almost £4bn of assets and reported a pre-tax profit of £31m for 2013, up from £8m a year earlier.

Its offering could be worth £200m-£300m.

History: expanded with Sir Richard Branson’s acquisition of Northern Rock
Size of listing: expected to be about £700m

Virgin Money The banking arm of Sir Richard Branson’s Virgin Group acquired Northern Rock two years ago and has since been transforming its savings and mortgage business into a full service bank.

It is considering floating next year after it has launched current accounts and strengthened its board.

Bankers expect its offering could be worth £700m.

History: opened its first branch in 2010
Size: Metro now has about 25 branches

Metro Bank Metro Bank opened its first branch in 2010 and now has 25.

Its older branches are making money and it expects to be profitable overall next year.

Having recently raised about £390m through a private share offering, it is not expected to seek a listing until at least 2016.


History: launched by RBS private equity unit in 2011
IPO size: expected to be about £300m

Shawbrook Bank Another lender focused on small and medium-sized enterprises, Shawbrook was relaunched by the private equity division of Royal Bank of Scotland in 2011 as a provider of commercial mortgages and is still part-owned by that business.

It has been reported that the bank may float this year, although the lender itself has not confirmed that.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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