European banks aim for a place in high street: British clearers are threatened by competition from the single market, writes Lisa Vaughan
Sunday 31 January 1993
Deutsche Bank, Germany's biggest, confirmed last week that it will soon apply for UK clearing bank status. At least two other European banks, Credit Lyonnais of France and Swiss Bank Corporation, are considering it.
If they became clearers, it would further shake the British banks' grip on their home market (Hongkong & Shanghai Bank's takeover of Midland loosened it last year). On the other hand, it represents a significant commitment to London by some of the world's biggest financial institutions.
The European banks want to join the club of UK clearers - the 14 banks that process over pounds 80bn in large sterling payments daily for themselves, 300 other banks and customers - as part of a long-term global strategy to become 'universal' banks.
In the short term, being able to process payments themselves would give them an edge in their wholesale banking business done in sterling, such as foreign exchange, money markets and cross-border corporate banking. But Credit Lyonnais admits its longer-term intention is to get into the UK retail market, and Deutsche Bank has not ruled this out.
Klaus Bertram, London managing director of Deutsche Bank, said Deutsche plans to apply for membership of the Clearing House Automated Payment System (Chaps) during the first quarter of 1993. The bank sees membership as a strategic move, allowing it to offer clients state-of-the-art European payments services. 'From a group point of view, it means we will concentrate all of our sterling money flows via London,' Mr Bertram said.
'It is not our intention to compete with the British high-street banks. We look at it from the point of view of clearing wholesale payments, not necessarily retail business.'
Olivier Mas, general manager of Credit Lyonnais in London, said that becoming a UK clearing bank would be a step towards entering UK retail banking. 'It is well known we have retail interest in Britain,' he said. His bank is considering joining Chaps because it would be a logical progression towards clearing in a single European currency, would offer the advantage of improving its service to existing customers and would enable it to offer fee-generating 'correspondent bank' services to other banks.
Britain's banks say officially that they do not feel threatened by their European rivals' interest and would welcome the competition. Foreign banks have long been key players in London's financial markets, and their huge volumes of sterling transactions bring more business to London.
But a banker at one of the big four clearing banks said: 'It would be foolish to close one's eyes and say it (Chaps application) is simply a straightforward move. It is a way for them to position themselves in the London market.'
The big high-street banks 'won't like it but they won't be able to stop it', another Chaps clearer said. If the Europeans eventually entered the UK retail market, TSB and Abbey National would be the most likely bid targets, he added.
Citibank, America's biggest bank, joined Chaps when the system was launched in 1985, but it failed in UK retail banking. Chaps has been open since then to all applicants, domestic or foreign, which meet the technical and volume criteria, according to the payments association run by the banks.
But European banks say certain conditions prevented them from joining and were only relaxed by the Office of Fair Trading and the single market banking directive in late 1992.
These conflicting appraisals may reflect the UK banks' respect for and fear of their European rivals' sophisticated strategies, market approaches and products. 'The potential for penetration into this market is great,' one banker admitted.
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