The name Kent Reliance oozes respectability. Branding consultants might have picked it out in a crowd as a way to sound instantly venerable. So it is disappointing that the ex-building society, rescued by JC Flowers, is becoming a listed challenger bank under the infinitely less distinctive OneSavings Bank banner.
It is just the first of a clutch of challengers seeking to float and looking to raise up to £10bn. They range in size from Santander UK to niche banks such as OneSavings and Aldermore. They do not all have equal chances of success – either in business or of winning over investors.
So many customers are dissatisfied with mainstream high street banks that focusing on consumers might seem the easier task. Yet customers are often both cross and inert. Two-thirds of main current accounts – often the gateway to selling other products – are still with the Big Four. Meanwhile, a more crowded field means margin pressure for everyone.
A focus on more specialist activities, such as commercial mortgages or other types of business lending, may offer a more compelling story.
When it comes to investors, Lloyds Banking Group looks an encouraging example. It trades at about 1.5 times book value, a premium to the rest of the banking sector. Certainly, the results from HSBC and Barclays have shown the drawbacks of investment bank ownership.
But Lloyds’ current position as a pure play UK retail banking stock is unique. There is no reason why a jump in the number of quoted banks with similar strategies should increase the capital available for investment. The biggest challenge facing the challengers will be appearing sufficiently appealing for customers and investors to prefer them. Names more eye-catching than OneSavings would help.
Paul Coyle, group treasurer of Wm Morrison, was arrested on suspicion of insider trading five months ago, but has not been charged. We should, of course, deem him innocent unless proved guilty. But lack of evidence aside, the Financial Conduct Authority may be reserving its position because Mr Coyle is part of a broader FCA investigation into market abuse.
The watchdog will have scrutinised movements in the shares of Ocado before Morrison announced it was in talks to distribute groceries through the online retailer on March 14 2013. The price rose 12 per cent from the start of that month. Trading was heavy on days such as March 11, when 3.4m shares changed hands.
Mr Coyle, who has been suspended by Morrisons, was a “person discharging managerial responsibilities”, which meant strict rules applied to share dealings. He may also have signed an agreement restricting the use senior executives could make of knowledge of the Ocado deal.
But the FCA would spread the net wider if share trading suggested a group of insiders might have been involved. Banks connected with Morrisons could expect to field questions from the FCA.
In December, the supermarket failed to outline the allegations that led to Mr Coyle’s arrest. Criticisms of this now look unfair. The company has probably stayed silent at the request of the FCA.
Hell hath no fury like an independent director piqued. Would-be reformer Lord Myners found other board members of the Co-operative Group were complacent and insulted executives. His riposte, a lengthy report proposing reforms to the imploding mutual, pays them back with interest.
The former City minister anatomises the failings of time-serving representatives who govern a retailer with 100,000 staff. Headings range from “procrastination” to “corrosive suspicion”. A chart compares the experience that directors of retailers have had on other boards. For Co-op, this is represented by a mere blip. The blip is Lord Myners, according to a footnote.
The ex-Gartmore boss could easily have written a report that flattered and cajoled 100 regional representatives. They will vote shortly on his sensible plan to split governance between a board with business expertise and a consultative body.
Rejecting diplomacy, Lord Myners has adopted shock tactics whose chance of success is lower. He evidently fears the battle for reform is already lost. The end game he then envisages is of the Co-op winding itself up under pressure from its lenders. A group that was once the UK’s biggest grocer would sell its businesses and retreat into charitable status.
A derisive epitaph for the Co-op, rocked last year by drug allegations against former Co-op Bank chairman Paul Flowers, might be: “Should have done the math, not the meth”.
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