The appalling record of banks from the British Isles owning subsidiaries in the US

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The Independent Online

It must be something to do with the Declaration of Independence. The record of banks from the British Isles owning subsidiaries in the US is terrible. In fact it is worse than that: it is close to disastrous.

The $750m (£532m) loss sustained by Allied Irish Banks from the "rogue trader" in its Baltimore subsidiary, Allfirst, is reminiscent of the way things were in the 1980s. Then the mighty Midland Bank, which at the time was a beacon of British banking, bought something called Crocker in California. Crocker turned out to be riddled with problems. There was lending to Mexico, lending to real estate developers, lending to all sorts of people who wouldn't give it back. The losses ran into the hundreds of millions – and that was when $750m was a lot of money. Midland never recovered and was ultimately sold to HSBC.

HSBC, though arguably not from the British Isles, is far from immune. It has spilt much red ink in the Pennsylvania area through its Marine Midland subsidiary (no relation to Midland Bank). Undeterred, it paid $10bn for Republic Bank of New York a couple of years ago, only for its founder, Edmund Safra, to die mysteriously and the New York economy to suffer following the World Trade Centre disaster.

Standard Chartered, Barclays and NatWest have all lost fortunes in various US ventures. Standard Chartered, like Midland, bought a bank in California, and even gets a name check in Armistead Maupin's San Francisco classic Tales of the City. Mr Maupin makes no mention of the massive losses and hasty departure from the bank a decade ago.

Barclays ventured into consumer lending in the US. Like many second-tier players in this sort of area, it picked up a portfolio of dross. After writing off squillions in the early 1990s, it quit the country.

NatWest bought a portfolio of banks on the eastern seaboard. The mess was one of the contributing factors in the bank's decline and, after paying over the odds to get into America, it eventually backed out shouldering massive losses.

Perhaps the closest correlation with the Allfirst situation is provided by Kleinwort Benson. The merchant bank owned a successful swaps trading business in Los Angeles. It gave it lots of autonomy until it discovered the operation had lost millions in lending money to a shopping centre development in Pasadena. The controls were strengthened pretty soon afterwards.

Part of the problem is distance. It is difficult to have a hands-on approach from the other side of the Atlantic, so it is tempting to put your trust in bankers who, after all, appear to speak the same language as you.

At Allfirst, Allied Irish Banks took a fairly relaxed view of how it was run. It trusted Susan Keating, the boss of Allfirst, who oversaw its integration with First Maryland. Indeed Ms Keating was recently promoted to the Allied Irish Banks board. Such a laid-back approach has cost it dear.

Just about the only British bank to have done well in the US is Royal Bank of Scotland. Its Citizens Financial operation has gradually spread from its Massachusetts core and has been eyeing Maryland, just as Royal Bank has been making good money in Ulster and is eyeing the rest of Ireland.

But will this be a marriage made in heaven, or another American nightmare waiting to happen?

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