TSB still wants to capture a building society: Mortgage business seen as key element in ability to cross-sell products
Peter Ellwood, chief executive, said he was confident that Lloyds Bank's takeover of Cheltenham & Gloucester Building Society would go ahead, and he was keen to buy a society, although there were no talks at present.
'But it won't be the end of the world if we are unable to do it,' he added.
Such a purchase would give TSB much-needed opportunities for cross-selling. Pre-tax profits from its insurance arm fell by pounds 3m to pounds 85m in the six months to 30 April. This included a pounds 15m fall as a result of declining stock markets.
Retail margins are falling, and despite much improved bad debt provisions the TSB banking division only managed a pounds 6m profits rise to pounds 124m. In contrast, the Hill Samuel merchant bank arm, which incurred heavy losses on property loans in the late 1980s, held steady at pounds 53m.
The interim dividend is up 12.5 per cent at 3.544p, covered 2.7 times compared with one time in the first half of 1993. TSB's shares fell 9p to 211p.
The key tier 1 capital ratio rose from 8.1 to 9.1 per cent and is set to continue growing, the bank says. This makes it one of the best capitalised high street banks and most able to afford an acquisition.
Mr Ellwood said margins on deposits fell from 3 per cent in the first half of 1993 to 2.2 per cent, but that was a price worth paying in order to give a better deal and widen TSB's customer base. It was counterbalanced by quality income from mortgages, personal loans and credit cards.
The mortgage business is seen as a key element in TSB's ability to cross-sell products, and home loans grew by pounds 600m, or 9.5 per cent compared with an industry average of 2.1 per cent. The overall mortgage margin is 1.6 per cent.
The unit set up by TSB to wind down the Hill Samuel loans book made a pre-tax loss of pounds 23m compared with a pounds 56m loss in the second half of 1993 and an pounds 86m loss in the first half of 1993. The written-down value of the loan book has nearly halved since the first half of 1993 to pounds 471m. Unit trust sales doubled to pounds 335m.
The bank closed 50 branches during the half-year, and would meet its target of 110 by the year end, said Mr Ellwood. The finance union Bifu urged the bank to cancel its closure programme in light of the profits.
'Customer complaints have reached an all-time high. The closure programme will do nothing to improve service,' said John Townsend, Bifu assistant secretary.
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