Banks hit by takeover fever

If ever an industry was made to benefit from microchips, banking is it. Yet we are wedded to the idea of a branch in every high street

I am not certain I like banks. In a long, and not entirely undistinguished, career in the City, I have been made redundant only once. By a bank. Says it all really.

As an investment manager, not liking banks would have been a disastrous stance to take so far this year. Just look at HSBC as an example. This, the largest of the banks quoted in the UK, despite the fact that much of its revenue derives from overseas, has risen by quite a significant percentage this year, to give it a stock market capitalisation that comfortably exceeds the likes of Barclays, Lloyds TSB and NatWest.

NatWest, of course, has its fair share of problems just now. Mergers with Abbey National and Prudential have been discussed, but no longer seem likely, so the bank is vulnerable to an overseas predator. There are plenty of players with both the will and the cash to move in on NatWest. In Europe ABN Amro has been named as having the necessary muscle. ABN Amro has a very successful investment banking operation of its own - Hoare Govett - so it may be that access to the UK's branch backing network is all it seeks. This paints a bleak picture for the employees of NatWest Markets, who presumably are keeping headhunters happy in their endeavours to find new houses from which to ply their wares.

This is what has been driving the banks sector forward - the knowledge that more takeovers are not just likely, but inevitable. Europe is seriously over-banked. If ever an industry was made to benefit from the microchip revolution, banking is it. Yet we are still wedded to the culture of a branch in every high street. Telephone and PC banking will cut swathes through the retail operations of high street banks, just as ATMs and Electronic Deposit Taking will diminish the need for cashiers. A career in banking no longer looks a good long-term prospect for school leavers. There may not be too many Captain Mainwarings in future.

If the pain has not yet ended in the UK, you cannot imagine what it is likely to be like in continental Europe. There are nearly twice as many bank branches per head of population in Germany as that which we have in the UK. So much for Teutonic efficiency. Their banking revolution is only just beginning - but beginning it is. Already the merger between Bayerische Vereinsbank and Bayerische Hypobank has stimulated speculation that more German banks will get together. Branches will be an initial casualty, with fewer staff an inevitable consequence. Much more interesting is what may happen as these banks start to cross borders in their endeavours to deliver a more cost-effective service. Look out for more takeovers of the Deutsche Bank/ Morgan Grenfell, Swiss Bank/Warburg and Dresdner/Kleinwort Benson variety.

Back home it seems that the appetite for domestic acquisition and consolidation is far from sated. Birmingham Midshires has announced it is in talks with Royal Bank of Scotland, admittedly with no ultimate decision on whether or not mutual status is a good thing to retain, having been reached. It is quite difficult to justify to members the denial of a windfall profit likely to exceed the benefits of remaining mutual, unless you are a serious borrower or lender - or both. Halifax estimated the average member would have needed 30 years of continuous association with the society before gaining more than the effective value of the windfall bonus.

Well, we are now right in the middle of the banks' reporting season. Overall profits are expected to grow by around 16 per cent on average. But the position is skewed by good performances that are expected to be delivered by the two heavyweights in the UK market - HSBC and Lloyds TSB. Both have recent mergers under their belts which are enabling costs to be cut out of their operations. The overall picture may not be quite as rosy as the aggregate position might suggest.

And we have many more banks to report now. Perhaps the thing to do is to try to pick smaller members of this growing fraternity, likely to lose their independence as the consolidation of this sector continues. The general period of outperformance for banks may be coming to a close, but there will still be money to be made.

This slowing in the advance of the financials could have implications for the market. It is difficult to find too many bulls among investment professionals these days, but still share prices power on. Analogies are being drawn with 1987. If so, we could be close to the peak, and there is no doubt there will be many who will look at the market as we approach the autumn with growing concern.

The position has changed, though. Global economic expansion at the same time as a low inflationary environment among developed countries has created a virtuous circle for financial assets. The empowerment of the individual is playing an increasingly important role in the direction of markets. It may be difficult to find cheap assets to buy, but I am not convinced we will see the same sort of retrenchment at the end of this year as we saw 10 years ago. I hope not. Still, it may pay to be just a little more cautious as the days draw in.

Brian Tora is chairman of the investment strategy committee at Greig Middleton, stockbrokers. He can be contacted on 0171-655 4000.

Start your day with The Independent, sign up for daily news emails
Suggested Topics
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search

Budget 2015: George Osborne is set to get tough with further cuts in public spending

From pension relief to property charges and even the 'lock' on tax rises, everything could be up for grabs this Wednesday. Simon Read reports
Put the phone down on the coldcallers who see pension liberation as an opportunity to liberate your pension from you

The 'no-hang up' scam targets vulnerable people - and your bank may not protect you

Unscrupulous crooks prey on older people to trick them out of their savings

Money Insider: How to make credit cards pay

Andrew Hagger reveals how to get the most from your plastic

Questions of Cash: My 'perfect travel companion' from the Post Office was a waste of money

One reader purchased the Post Office Travel Money Plus Card for a motoring holiday but discovered it can't be used at self-service petrol stations or autoroute toll booths

Continuing low interest rates are encouraging more people to switch to interest-only mortgages

Interest-only mortgages return to give more flexibility to borrowers

The credit crunch put a temporary end to these once-popular mortgages. But lenders are waking up to rising demand and relaxing their rules

EU to scrap roaming charges in 2017: European Commission under fire for taking so long to act

UK consumer groups complained that British holidaymakers face another two years of mobile phone misery before the law comes into effect

On the money: Yorkshire building society has demonstrated that it is taking the P2P industry seriously

Is peer-to-peer lending a risk worth taking?

The P2P industry must do more to shake off an unjustified image of being too complex and risky for the everyday saver, says Andrew Hagger

Generating grievances: Scottish Power's Longannet station in Fife

Questions of Cash: Scottish Power says it's sorry - again and again

Six of the energy company's customer have cause to blow a fuse this week

Will Patisserie Valerie be the portfolio's sweet spot?

Derek Pain: 'Patience is a virtue but maybe I should cut and run'

Derek's portfolio is currently suffering because of his failure to be more ruthless

There are now more than three million people in “severe problem debt”

Debt managers are misleading vulnerable people, warns watchdog

One debtor was given a repayment plan that would have taken 125 years to repay

Challengers are smashing the traditional high street banks when it comes to offering decent savings rates

Ignore the new breed of savings institutions and you'll lose interest

NatWest has ripped up its pledge to never be the last bank in town

NatWest pledged five years ago it wouldn't close the last bank in town. Now villagers have been told the branch shuts in September

When the last bank closes, local shops quickly go out of business

Under new state pension rules we will all be much worse off

Why did no one notice? The Government hides behind complexity, says Neasa MacErlean

Bogus Islington landlord scams public for £20,000 in fake deposits

It’s not just Islington... Simon Read warns renters and landlords about a nationwide fraud operation

Questions of Cash: The paperwork wasn't right so I was left high and dry with a broken washing machine

A reader encountered a problem with a Currys washer/dryer care plan

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Mortgage Advisor - OTE £95,000

    £40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...

    SThree: Trainee Recruitment Consultant

    competitive: SThree: Are you passionate about sales?Do you have a keen interes...

    Recruitment Genius: Loan Adviser - OTE £30,000

    £17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Day In a Page

    Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

    EU 'family' needs to forgive rather than punish an impoverished state

    An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
    Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

    Gaza, a year on from Operation Protective Edge

    The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
    How to survive electrical storms: What are the chances of being hit by lightning?

    Heavy weather

    What are the chances of being hit by lightning?
    World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

    World Bodypainting Festival 2015

    Bizarre and brilliant photos celebrate 'the body as art'
    alt-j: A private jet, a Mercury Prize and Latitude headliners

    Don't call us nerds

    Craig Mclean meets alt-j - the math-folk act who are flying high
    How to find gold: The Californian badlands, digging out crevasses and sifting sludge

    How to find gold

    Steve Boggan finds himself in the Californian badlands, digging out crevasses and sifting sludge
    Singing accents: From Herman's Hermits and David Bowie to Alesha Dixon

    Not born in the USA

    Lay off Alesha Dixon: songs sound better in US accents, even our national anthem
    10 best balsamic vinegars

    10 best balsamic vinegars

    Drizzle it over salad, enjoy it with ciabatta, marinate vegetables, or use it to add depth to a sauce - this versatile staple is a cook's best friend
    Wimbledon 2015: Brief glimpses of the old Venus but Williams sisters' epic wars belong to history

    Brief glimpses of the old Venus but Williams sisters' epic wars belong to history

    Serena dispatched her elder sister 6-4, 6-3 in eight minutes more than an hour
    Greece says 'No': A night of huge celebrations in Athens as voters decisively back Tsipras and his anti-austerity stance in historic referendum

    Greece referendum

    Greeks say 'No' to austerity and plunge Europe into crisis
    Ten years after the 7/7 terror attacks, is Britain an altered state?

    7/7 bombings anniversary

    Ten years after the terror attacks, is Britain an altered state?
    Beautiful evening dresses are some of the loveliest Donatella has created

    Versace haute couture review

    Beautiful evening dresses are some of the loveliest Donatella has ever created
    No hope and no jobs, so Gaza's young risk their lives, climb the fence and run for it

    No hope and no jobs in Gaza

    So the young risk their lives and run for it
    Fashion apps: Retailers roll together shopping and social networking for mobile customers

    Fashion apps

    Retailers roll together shopping and social networking for mobile customers
    The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

    Gaping hole at the heart of the European Union

    Treatment of Greece has shown up a lack of genuine legitimacy