Outlook: It's a wonderful, wonderful life, is banking

Eighteen months after deciding that it was not very comfortable with its exposure to banking, Standard Life has had second thoughts and concluded it is a jolly good business to be in after all. So good, in fact, that it has launched its very own retail bank.

Standard Life's decision last May to offload its 32 per cent holding in Bank of Scotland caused a frightful kerfuffle north of the border. In Edinburgh financial circles it was regarded as a betrayal to rank alongside the massacre of Glencoe. The Standard explanation - that it would rather not have such a large slice of its funds tied up in one company, thank you all the same - cut no ice with the BoS. Its chairman Sir Bruce Patullo stormed out of the Standard Life boardroom, throwing his directorship in the bin as he went.

But nor did it cut much ice elsewhere. Retail banking and life and pensions are so much part of the same jungle these days that only those with a foot in both camps are sure to survive. Hence we know why Standard Life's chief executive Jim Stretton was so keen to "rebalance the equity portfolio" last May. The day after its BoS shares were sold, he began thinking about Standard Life Bank.

And now another almighty kerfuffle is in prospect because Standard Life is offering savings rates that will make the eyes positively water at every other lender, including the supermarket banks launched by Tesco and Sainsbury. Jim Spowart, who was poached from Direct Line to set up and run the bank, is too polite to say so and anyway he can't too rude about BoS since it remains Standard Life's biggest tied agent. But the fact is that the high street banks with their branch networks will never be able to live on the same margins as a telephone-based bank like Standard Life.

It reckons it will also have an edge over Tesco and Sainsbury who have to share their banking profits and Virgin and Direct Line, who incur heavy marketing costs to attract customers. Instead, Standard Life will market the bank through its 20,000-strong network of independent financial advisers on wafer-thin commissions.

The launch of the bank is also an elegant exercise in financial recycling since Standard Life reckons it will get a fair chunk of its deposits from life policy holdings ploughing their money back in as policies mature. If things go to plan then the target of pounds 1bn in deposits and 100,000 customers in a year could prove conservative.

What yesterday's announcement does not represent is any weakening in Standard Life's commitment to mutuality. With pounds 56bn of assets behind it, there are very few rivals who could force Mr Stretton to think differently and plenty more who will be watching his experiment in banking with special interest, even the putative monster, Barclays Westminster.

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