New banks for old as JC Flowers and Levene eye retail market

Suddenly everyone wants a piece of the UK retail banking market. Don't they know there's a recession on?

by
Last Updated: 31 Aug 2010

It’s all go in banking this week. Firstly, JC Flowers – the New York based private equity fund best known for big ticket buyout deals like Shinsei bank in Japan and NIBC in the Netherlands – is planning to take a 49% stake in Chatham-based Kent Reliance, a mutual minnow with one branch and only 45 staff.  

And secondly, a group of city bigwigs headed by Lord Levene, and including Sir David Walker and Lord (John) McFall, wants to start up a brand new bank of its own. What’s going on?

Well, the KRBS deal would give JC Flowers – founded and run by ex-Goldman Sachs banker Christopher Flowers – a platform to get into the UK market, which it has been trying to do ever since failing to get its hands on Northern Rock back in 2007. The plan this time is to use the Kent Reliance as a vehicle to buy up ailing UK mutuals and consolidate them into one big ‘super-mutual.’ With all the benefits of scale and marketing muscle that would bring.

The market is still pretty fragmented so there’s commercial logic to the idea – there are at least 50 UK mutual societies still out there, and many of the small ones have been feeling the economic chill very badly. They might be only too happy to be rescued.  

But to execute this cunning plan, the group needs one crucial asset in particular - and no, we’re not talking about a season ticket to Chatham’s famous Historic Naval Dockyard. It’s a UK banking license, without which neither Flowers nor anyone else is allowed to set up shop as a bank or building society here.  Something which the Kent Reliance, founded as it was in 1888, can readily provide.

And as well as the Flowers/KRBS tie-up, there’s also Lord Levene’s star-studded consortium to consider. Apparently dazzled by such a glittering array of City grandees, the FSA has come over all chummy, saying that it will grant the imaginatively named ‘New bank’ consortium a license without all the trouble and expense of its having to buy an existing bank. Which must be rather galling to the Flowers crew.

To be fair, the consortium’s top team do have a good deal of experience (as well as an impressive collection of titles) between them. Levene is chairman of Lloyd’s of London, Walker was the author of last year’s government report on banking management and McFall is the outspoken former chair of the Treasury Select Committee.

They are expected to bid for the 600 ex-Cheltenham & Gloucester branches of Lloyds TSB which are up for sale (and perhaps its online unit Intelligent Finance, too) and their gameplan is essentially to return to local, branch-based banking, offering both individuals and businesses a more personal and informed service. They even plan to have bank managers (remember them? who know their customers and can make decisions based  more on their own judgement than on what the computer says. Sounds good, but can they make any money at it?

Both of these deals are still in the early stages – the KRBS gig has yet to be approved by the Society’s 180,000 members - but nevertheless it’s clear that high street banking is in for a bit of shake-up. Not before time, you might say…

In today's bulletin

New banks for old as JC Flowers and Levene consortium eye retail market
BP clean-up costs top $3.5bn - as vultures circle overhead
Surf's up: Martha Lane Fox launches plan to get Britain online
Editor's blog: Uselessness is everywhere
MT Expert's Top Ten Tips: How to instantly connect with anyone

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today