Business Outlook: Clearing banks on the defensive

Was there a takeover approach by Barclays to Legal and General? David Prosser, chief executive of L&G, was quoted in the weekend press as saying he didn't believe in mergers and that any approach would be rebuffed. His remark was a general one, intended to convey the company's determination to remain independent. So he was somewhat surprised to see it linked with the name of Barclays. He hadn't intended it that way. As is often the case in the press, he seems to have been taken out of context. So did it happen? Did Barclays approach him? Probably not, seems to be the answer, though it is easy to see why the stock market might think it true. The idea is eminently plausible.

Having decided to throw in the towel on investment banking, Barclays is under pressure to come up with an alternative strategy for taking the company forward. The idea of using the bank's established channels of distribution to sell other financial services, such as insurance, endowments and pensions, is hardly a novel one. Bancassurance has been around for many years now. But it is only relatively recently that corporate financiers have started to think in terms of the creating giant retail financial services conglomerates out of the merger of high street banks with life and insurance companies.

National Westminster Bank got quite a long way down the aisle with the Prudential before deciding to call it off, and a few years ago, Halifax bought Clerical Medical. It is therefore entirely possible that Barclays is thinking in the same terms - a takeover of L&G, or possibly Norwich Union, with which it already has links. Would such a union make sense? A case can certainly be made for it. There would be little scope for cost cutting, unlike any consolidating merger within these separate industries, but there are obvious advantages to be had from funnelling the insurance company's products through the bank's customer base.

Moreover, as the borders between traditional forms of retail lending, account holding and other forms of saving become more and more blurred, there is obviously something to be said for the one-stop shop, the company that can offer all these services.

But do high street banks need to merge with insurance companies to create that opportunity? Royal Bank of Scotland has developed a highly successful relationship with Scottish Widows which delivers benefit to both companies, probably on a par with anything that could be derived from a full-scale merger, but without having to go through that process.

It is no accident that Royal Bank of Scotland is considerably more innovative in the banking market than most of its English peers, despite its comparatively small size. It was one of the first to introduce telephone banking and now has more of its customer base using this service than any other bank. It was also the first to introduce a fully fledged Internet bank and has forged some very promising bankinglinks with Tesco and Virgin Direct.

In part, Royal Bank is able to do this because it is comparatively small, with just 2 per cent of the UK banking market. For larger banks to go wholeheartedly into these new forms of low-cost banking would mean cannibalising their existing markets on a scale that would do irreparable damage to margins and profits. For Royal it is not the same. For every one customer it cannibalises from its existing customer base, it gains 50 others from rival banks.

The big clearers are highly vulnerable to these new forms of banking and are naturally, given the constraints of their existing cost bases and market shares, worried sick by them. It is against this backdrop that the pressure for mergers, both within the banking and insurance sectors and between these sectors, ought to be seen. All these plans are essentially protective and defensive in nature. If these companies were serving their customers properly with state of the art low-cost banking and insurance products, grand strategies like these, dreamt up in the City for the benefit of the City, wouldn't even be getting on to the chief executive's desk, let alone be coming close to execution. The fact that they are serves only the underline the failings of these ancient behemoths.

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
PROMOTED VIDEO
Sport
Gabriel Agbonlahor, Alexis Sanchez, Alan Pardew and Graziano Pelle
footballAfter QPR draw, follow Villa vs Arsenal, Newcastle vs Hull and Swansea vs Southampton
New Articles
i100... she's just started school
News
news
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
New Articles
i100... despite rising prices
Voices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
voices
Arts and Entertainment
musicHow female vocalists are now writing their own hits
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.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam