The tycoons backing a 175-year-old Mutual

Can little Airdrie Savings Bank restore Scottish financial pride? James Moore reports
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The Independent Online

Barely a week goes by without another "new" banking group setting up, boldly proclaiming a back-to-basics policy of serving customers with loans and savings while avoiding the casino-style gambling that brought the existing industry to its knees.

Yesterday it was the Scots who joined the party. Their Airdrie Savings Bank is hardly new. In fact it has been operating continuously in its small corner of Lanarkshire for 175 years. While rivals cast off their mutual shackles and took their businesses down to the stock exchange in London, Airdrie stuck to its guns. It was not until the credit crunch struck that Airdrie came to wider public attention, its old-fashioned view of banking ensuring that it stood out from everyone else.

Now, however, after years of a very Scottish sort of conservatism that the rest of that country's banking industry cast aside, Airdrie wants to add a little fizz to its business. It has been backed by some of the biggest names in Scotland's business community, who have put their money where their mouths are to the tune of £1m each. Not in return for shares, you understand. No, the money is going on deposit and will be used to help Airdrie lend more.

The backers include Stagecoach entrepreneur Brian Souter and his sister Ann Gloag. Sir Tom Farmer, who founded Kwik Fit, is another, as is Sir David Murray, best known for his involvement in Rangers Football Club but also chairman of the property-to-metals company Murray International Holdings. Financier Sir Angus Grossart is also signed up as is Ewan Brown, who is another Stagecoach director.

Scottish pride was clearly hurt by the banking crisis, not least because two of its largest casualties were the country's two main banking institutions: Royal Bank of Scotland, and HBoS ( whose difficulties, which ended up with Lloyds after the latter rescued the group, were largely traceable to Bank of Scotland).

The businessmen are now hoping that Airdrie can help to go some way towards showing that Scotland's reputation for financial probity was not entirely misplaced.

Mr Souter said: "It's the only independent bank which is really remaining and it's built on mutual principles which we all felt were really important. I think people were tired of the big profits and the big salaries and all the rest of it. None of it was really benefiting the depositers.

"Here's a bank that has got a great track record, that has been sensibly and conservatively run. Here's an opportunity for us to work with the trustees to develop it into something that's maybe a bit bigger. People are really wearied with what has happened with our banks and angry about it too, justifiably."

Mr Souter and co would like to see Airdrie use its £10m of additional deposits not only to expand its lending, but to open more branches and set up an online operation. At some point, Airdrie will need to expand its capital base but Mr Souter said: "We can help with that too."

Mr Brown said: "We are looking at this in a very different way from what we have been involved with in the past and we are all in this for the long term. We are passionate about success in Scotland. I think we were all pretty disappointed about what happened."

In case anyone wondered, Bob Boyle, president of Airdrie Savings Bank is at pains to stress that despite the extra investment that has come his way, and the expansion that is planned, he doesn't want to get too far from the conservatism that has served Airdrie so well.

"Airdrie Savings Bank, as you would expect, is approaching expansion with caution. We will dip our toe in the water by opening one branch at a time to prove the sustainability of growth before considering more ambitious plans," he said. Nonetheless, it still marks a step change in what Aidrie has been doing up to now.

Airdrie is very much adding its name to the growing list of "new" banking ventures hoping to capitalise on the public's disaffection with an industry which they have had to bail out, and whose leading lights still appear to treat them with something that looks very close to contempt.

The bank is somewhat different from the existing "new" groups. It is still very much a mutual and it is very Scottish, born out of that nation's wounded financial pride. You couldn't see something like it happening south of the border. But Aidrie is the latest in an increasingly crowded field of contenders.

The others are Kent Reliance Building Society (backed by US venture capitalist JC Flowers), Aldemore (a small business specialist), Metrobank (American), Virgin Money (Sir Richard Branson) and Lord Levine's NBNK, arguably the most credible challenger given the millions he has secured in pledges from City of London investors.

All of them have very different structures, but all of them say they will offer the same thing: back-to-basics banking. Lord Levine, who is also chairman of Lloyd's of London, said: "I can understand what the Scots are doing. It is the same sort of thing that we are doing, although on a rather smaller scale. Retail banking is a good business. It has been diluted by existing players going into investment banking and overseas ventures that don't always work out." Lord Levine said his operation is "in no hurry". "We are getting our act together, getting management in place."

But can any of them really make any inroads when it comes to taking on the resurgent "Big Four" of Lloyds, Barclays, HSBC and Royal Bank of Scotland – or the Big Five if you add Spain's Banco Santander, which is buying a large chunk of Royal Bank of Scotland to combine with Abbey, Alliance & Leicester and parts of Bradford and Bingley.

So far the City is sanguine. Ian Gordon, an analyst at Exane BNP Paribas, said: "I don't really think any of the new crop of entrants are going to have any material impact on the incumbents at least for the next few years but that's not the same thing as saying their business models aren't viable."

However, he warns that the banking market remains a tough place to enter. Funding is hard to find, competition for retail deposits is intense and margins remain wafer thin. It also remains devilishly difficult to get consumers to switch accounts (largely because banks make it difficult and have for years relied on consumer inertia, which has enabled them to get away with offering a terrible service as recent published complaints data shows). But Mr Brown said of the Scottish venture: "We are all pretty hard-headed. We wouldn't have done this otherwise." And as for Lord Levene: "Watch this space," he said. "The money's not a problem for us. We have the investment."