As the public digests the mind-boggling billions of the second bank bail-out, attention is now turning to potential acquirers of those parts of the state-supported banks being put up for sale in this unprecedented enforced EU restructuring of UK retail banking.
Tesco Bank has been cited by commentators as an acquirer for both Northern Rock and the Lloyds and RBS branch disposals. However, I cannot see the supermarket wanting to acquire a UK branch network which would only play into the hands of those who see the chain already dominating the British high street. Virgin Money which tried to acquire Northern Rock before its nationalisation must be a favourite to acquire the 76-strong chain.
Another much-cited potential acquirer of UK banking assets is National Australia Bank. Through its ownership of the Yorkshire and Clydesdale branch networks it has a good presence in the north and Scotland. Observers point out that it could benefit from the acquisition of a chain in the south. However, it has proclaimed its disinterest in acquiring further UK banking assets at the moment.
The two banks which I see as being potential acquirers of the 600-odd Lloyds and 318-RBS banking branches lie in the Eurozone. I think that France's BNP Paribas and Spain's BBVA could emerge as frontrunners for acquiring these two networks.
BNP Paribas is both the Eurozone’s largest bank by deposits held and France's largest company. Most importantly, it has escaped the credit crisis relatively unscathed, and acquired 75% of Fortis Belgium in May. UK regulators are likely to be well disposed to a bank ranked 8th safest in the World*. It has its second global headquarters in the UK and employs over 6,000 people in the country but despite this, is not well-known here outside the wholesale financial community. This could be about to change.
BBVA is another interesting contender as it could be tempted by fellow Spanish bank Santander’s success in the UK. Last month, Santander reported that profits at its UK operations grew by over a third during the first nine months of the year. BBVA is Spain's second largest bank after Santander and has demonstrated its appetite for expansion through recent acquisitions in the US and China. In August, it won a US government auction to acquire the banking operations of Guaranty Bank in Texas and California. BBVA is perceived as a safe bank too – 13th in the World*. Its traditional banking approach that once made it boring to some is now paying off handsomely.
Acquirers of Lloyds’ banking network get about 180 Lloyds TSB branches in Scotland and 260 in England & Wales together with 160 Cheltenham & Gloucester branches. The Lloyds TSB branches retained by Lloyds will be re-branded Lloyds and the acquirer of the disposed branches also gets the TSB brand name. The TSB brand name disappeared from the high street over a decade ago. I would expect a potential acquirer to use the Cheltenham & Gloucester brand name for all the England & Wales branches and possibly revive the Trustee Savings Bank brand for the Scottish branches.
Acquirers of the RBS estate get a smaller estate of 318 branches comprising those trading currently as NatWest in Scotland and RBS in England and Wales. They are less fortunate on the brand front with RBS offering them just the Williams & Glyn’s brand, which disappeared from the UK high street in the mid-1980s.
BNP Paribas and BBVA are financially strong banks, but would their brands be strong enough for the UK high street? Is there another brand which they could partner with to enter the UK market? Is there a company out there which makes a business out of joint ventures under its own strong brand?
Perhaps we could be seeing the Virgin Money brand appearing on a lot more than just 76 branches?
If you would like to discuss this matter, please contact Dan Taylor at BDO.
*Source: Global Finance, February 2009