Russell Bruce on the HSBC report: Scotland is doing OK (Part 1)

‘Scotland is doing OK’ – that might sound like a paler version of Harold Macmillan’s catch phrase  ‘You’ve never had it so good.’ Despite all the doom and gloom, something we Scots are also quite good at, we are in comparative terms faring relatively well.

So what exactly do I mean by comparative? Well with England as it happens.

HSBC, the UKs largest bank, has just released a report that shows Scots have larger savings than any of the English regions with the exception of London.

Being ahead of eight English regions seemed to indicate that Scotland would come out ahead of England in the savings table league if the results for the nine English regions were aggregated to calculate the average for savers in England.

I am grateful to HSBC for supplying the sampling breakdown to enable this to be calculated.

Scots save more

As the graph above shows, Scots have an average savings pot of £28,340 that is £4,529 above the average in England and more than double the Welsh average of £13,332.

When it comes to where Scots hold their savings that also shows some distinctive features. Only 49% of savings in Scotland are held on deposit with only the North West of England having a lower share at 44%.

Savers will be all too familiar with the low interest rates on offer at the present time.

Bonds are not a significant factor in the average savings pot in Scotland (4%) unlike the North West of England with 16%.

The other major surprise in the findings is that Scotland leads in the table for the largest share of savings held in equities at 38%. Scotland is 9% above the London ratio and pips the South East‘s equity savings share by 2%.

Scots have traditionally been a nation with a reputation for putting something aside for a rainy day. But if we head the league table of the nations for savings how are we doing on the income stakes?

I will be looking at that in Part 2 of our investigation into the performance of Scotland relative to other parts of the UK.

But lets have a quick look at Scotland’s banks.

The Banking Sector in Scotland

Bankers have found themselves the most distrusted and least respected sector in our society.

Bankers have leapfrogged below us journalists, tumbled out of sight of the distrust of used car salesmen because they drove markets to unsustainable levels knowing perfectly well the day of reckoning would arrive.

It always does. Markets are cyclical. Did they really believe Gordon Brown had abolished boom and bust?  Unlikely.

The truth is we need banks. We need them to be profitable. And above all we need them to be responsible. By their very nature banks need also to take risks. They need a balanced portfolio, like all good investors, so that the risks that pay off and the surer investments and lending can carry the failures without the shutters coming down and the power at ATMs being switched off.

Bob Diamond, the new Chief Executive of Barclays Bank, caused a furious reaction when he ventured to say ‘The time for remorse is over.’

Public response ‘In your dreams.’

In this brief examination of the banking sector in Scotland I would venture a different perspective showing, at last, the consumer may have a window of opportunity.

The demand for special taxes and levies on the banks is understandable. Given the unique position of the banking sector’s access to our money, you can be sure that like all costs, they will be factored into charges and a widening spread on interest rates.

If banks are profitable they can lend more to businesses to stimulate the economy and the tax on profits is how we get money back to pay for public expenditure.

No I would not support bonus levels any more than I believe enormous transfer fees help football clubs or David Dimbleby is really worth the £15,000 a week the BBC have offered him to stay on. Missed opportunity for a much needed revamp of Question Time.

In recent years the banking sector in Scotland has been dominated by RBS, with The Bank of Scotland next in size and the smaller Clydesdale Bank, owned by National Australia Bank providing a fairly limited choice to consumers.

The disastrous takeover of Bank of Scotland by the Halifax is over and the Halifax signs are coming down from Bank of Scotland branches. A local manager told me that those hated building society roll numbers are to disappear from statements as the bank returns to the industry standard.

Although now part of Lloyds Banking Group, the Bank of Scotland brand is being strengthened with Halifax brands now listed as ‘genuine’ subsidiaries of Bank of Scotland plc.

There remain ambitions, frequently reported, of Scotland’s banking grandees seeking a decoupling from the Lloyds shotgun marriage. Will that happen? Only time will tell.

But it is the new entrants to the Scottish market that are beginning to make things interesting in the banking sector. Where there is money you will find bankers and the HSBC Savings Report clearly indicates that Scotland is both seen as an increasingly important market and a country to recruit banking staff.

The new entrants have recruited heavily in Scotland helping to offset the bloodbath caused by the failures of RBS and HBOS.

Tesco Bank are expanding their Edinburgh Headquarters where over 500 are employed and have just acquired more land in the west of the city which is expected to figure heavily in Tesco’s expansion of banking services with space for 1000 more employees.

A further 800 jobs are being created in the bank’s administrative centre in Glasgow. Tesco Bank now has 6.5 million UK customers.

Virgin Bank established it headquarters in Edinburgh where the CEO of Virgin Money, Jayne-Anne Gadhia lives. It is still a fairly small operation but Virgin plan to expand to 100 employees in the capital.

Last January Sir Richard Branson acquired Church House Trust, a tiny Somerset based bank. The acquisition gives Virgin a banking licence allowing it to offer current accounts and mortgages to its existing 2.5 million customers.

Commenting at the time, Virgin Money chief executive Jayne Anne Gadhia said, ‘The financial crisis has tarnished the reputation of many UK banks. Virgin Money will provide a better, different form of banking to its customers, increasing competition in the sector.’

Spanish banking giant Santander entered the UK market some years ago with the acquisition of Abbey followed by Bradford and Bingley and Alliance and Leicester. All have been rebranded under the Santander banner and the new signage has been appearing on Scottish high streets in recent months.

The long promised listing on the London Stock Exchange has been delayed yet again. Santander is the largest bank in the Euro zone with a market capitalisaion of £62.6 billion.

Santander has been marketing aggressively for market share but customer satisfaction ratings have been poor and complaints high. They reached agreement last summer on the purchase 311 RBS branches in England and Wales and 7 Nat West branches in Scotland that will transfer by the end of this year.

The Co-operative Bank has been around for some time. It has been expanding steadily and is gaining business accounts as it increases business lending. It offers some of the best deals on credit cards compared with the big banks.

It has a base in Glasgow and a further three branches in Scotland through its acquisition of Britannia Building Society.

Strapline – ‘Good with Money’. Certainly they were nowhere near the buffers when the rolling stock came hurtling in.

Of the big London based banks Standard Chartered have always concentrated on overseas markets. A recent press release announces ‘Standard Chartered’s Goal to instill in Jordanian girls a love of sport and the importance of managing their money’

Goal is very worthy programme but don’t expect to see Standard Chartered in downtown Oban any time soon.

Barclays Bank has a small presence in Scotland with just 9 branches but it is HSBC that may yet prove the most interesting of those planning to expand in Scotland.

World’s local bank turns its attention to Scotland

Looking at the findings the HSBC Savings Study reported in this article, it is not surprising that this bank with a long history of Scottish connections is now looking to expand in Scotland.

In June 2009 John Rendall, Chief Operating Officer for HSBC in Mexico, was appointed CEO of HSBC Scotland. He has steadily been building up his management team since this Orcadian returned to Scotland.

HSBC is the largest of the UK banks listed on the London Stock Exchange with a market capitalisation of £125 billion.

Founded in Hong Kong and Shanghai in 1865 by Scot, Sir Thomas Sutherland, HSBC has long had a relatively small presence in Scotland. Yet it also has a long history of recruiting Scots.

The young Thomas Sutherland left Scotland for London to work in the shipping offices of the Peninsular and Oriental Steam Navigation Company. His energy was rewarded with advancement when he was sent to Hong Kong where he soon identified a need for a local bank.

Sutherland returned to London to become Managing Director of P&O and 10 years later its Chairman.

In 1884 he contested the Greenock seat as a Liberal candidate in a by election. At the 1892 election Sutherland stood as a Liberal Unionist and only won after a recount uncovered 50 votes in his opponent’s pile. He served as the member for Greenock until October 1900.

In recent years the bank has expanded its operations across the globe diversifying out of its traditional concentration on the Far East and now describes itself as ‘The World’s local bank.’

HSBC took a stake in the Midland Bank in 1985 and by 1992 had acquired the entire share capital of the Midland with its extensive network and now has over 1600 branches throughout England and Wales. During this period of growth Sir William Purves, another Scot, born in Kelso was at the helm overseeing this period of expansion.

Now it seems it is Scotland’s turn. John Rendall’s expansion plans for Scotland have been largely aimed at the commercial sector from their base of 6 branches.

Speaking to For Argyll about future expansion plans in Scotland an HSBC spokesman said, “We are currently looking at growing our personal finance business in Scotland. It’s a country we are looking seriously to expand within and are actively looking to increase our branch network.”

This is good news for bank customers. The growth in customer choice with new and expanding market players provides the customer with a bargaining tool. If you don’t believe you have bargaining power with your bank(s) try it. I have. You just chip away at the things you aren’t happy about and you will get concessions.

At the end of the day market share counts and none of the banks want to be seen to be losing out to their competitors.

Russell Bruce, Books Editor, 15^th February 2011

Parts 2 and 3 in this series will follow shortly.

The Savings Study referred to is HSBC Savings Map of Britain: A Snapshot of the State of the Nation’s Savings, January 2011

Graphs accompanying this article are produced by Russell Bruce.