Simon Evans: Tesco marches on to retail banking dominance

As our trust in traditional banks has plummeted, the respected supermarket has stepped into the breach
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The Independent Online

Right now, Tesco is the good guy in the banking world. The public's trust in the traditional banking sector, especially in the likes of Lloyds and Royal Bank of Scotland, has plummeted in recent years. Their reputations remain horribly tarnished.

The banks don't care whether or not they are endearing themselves to the public. All they worry about is repairing their damaged balance sheets. Lending continues, but at little more than a trickle. A friend of mine recently tried to get a modest commercial business mortgage from a major "lender". He was told politely that it was shut for business.

In contrast, Tesco's reputation remains firmly intact. Few brands in the UK garner the kind of respect and loyalty afforded to Tesco by the man on the street. The best covenant in the UK, one City analyst said to me last week. And profits at the company have continued to grow, up more than 1 per cent in the first half of the year, despite the recession.

There is no doubt in my mind that Tesco will be a powerhouse in the world of British retail banking and the company is certainly talking a good game already. But it won't all be plain sailing.

Tesco Bank's chairman, Andrew Higginson, and its chief executive, Benny Higgins, booted out of HBOS for being too conservative under Andy Hornby's reign, talked last week of Tesco's plans: to be straightforward and simple; to treat banking customers like grown-ups; to impose no sneaky charges, promisingd not to punish the odd mistake.

One thing that did surprise me was the pair ruling out Tesco's bidding for Northern Rock's so-called "good bank" (to be renamed Northern Rock plc). It would have given Tesco the infrastructure it needs, while the branch network, though small, would have been handy. It would also have been relatively cheap.

Having banking operations within stores is fraught with potential pitfalls. A degree of separation between the bank and the much-loved supermarket would have been more sensible because, when Tesco starts coming down hard on its poorer customers, slapping fines and overdraft penalties, the affinity they currently feel with the grocer is likely to become strained.

We are moving into new territory with Tesco, as it will have a huge amount of information on its banking customers and shoppers. Will it let its customers edge over their overdraft limits to buy the weekly shop? I don't know. It could make for some interesting checkout exchanges.

No decisions have been made on free banking for current accounts or charging for things like those rubber cheques that are being passed at the moment. But clearly the bank will need to make money, and rightly so.

If rumours are to be believed, Higgins and Higginson have been given stellar incentive packages to turn Tesco Bank into a frontline retail banking player. I have no doubt Tesco will make a success of the bank, but it won't be a linear path to success.

Tesco, like all banks, has one major hurdle to overcome: apathy. We Brits don't move around from bank to bank too often. And that could be the biggest issue facing Tesco's march to retail banking dominance.

Yellow Pages publisher goes to the wire to amend its £4bn debt burden

Yell? I would scream if I had shares in the Yellow Pages publisher. This weekend, the directories group Yell is just one petulant Spanish bank away from amending the terms of its near £4bn debt burden.

Rothschild and JP Morgan, Yell's advisers, have worked around the clock for weeks to get 95 per cent of its creditors by value to support the scheme.

To have got close to this figure – over 90 per cent – when there are around 300 creditors in a crazily complicated debt syndicate is no mean feat. Yell reached this figure on Thursday, at the third time of asking.

Rather than extending the deadline again, Yell and its advisers figured that the biggest remaining lender, believed to be the aforementioned Spanish bank, would fall into line.

Securing its support would mean Yell could finally go ahead with a rights issue that would raise £500m. This doesn't exactly break the back of its debt mountain, but it would at least be a start in sorting out the company's financial mess.

If the Spanish bank doesn't cede to the inevitable this weekend, Yell will have to go to the courts in order to lower the support needed to 75 per cent by debt commitment. That would take months – a waste of time and lawyers' fees given that with such proven support Yell would almost certainly win.

There is bad blood between Spanish and British banks. A leading debt restructuring expert, who has vast experience of working with our Iberian friends, tells me that the amount of UK money in Spain as companies unravel from Gijó*to the Costa del Sol has led to a great blame game between the banks.

My source reckons that the Spanish bank is in no mood to do its British counterparts any favours.

This is, of course, its right. But it should be ashamed of itself for dragging this out for so long.

Poor performance Aviva boss faces awkward questions

He might have earned the unfortunate nickname Randy Andy, but this week Andrew Moss, the chief executive of Aviva, the UK's biggest insurer, faces awkward questions of a different kind.

Poor numbers are likely to mean he will have to explain why, after his two years at the helm, the insurer continues to lurch from month to month. Aviva remains a conundrum to most people: It could be so much better. Plenty of value is locked in the business somewhere, but so far Mr Moss hasn't done a particularly great job of turning the key. That the firm's share price continues to lag behind that of Prudential – the firm it once tried to scoop up – says it all. Whatever Mr Moss does in his spare time matters little. It's his performance in the office that the City cares about.

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