TSB shows that there is right way to run a bank

Outlook Lloyds and RBS have typically considered it prudent to assume the position and take what regulators give them. Given that they’re state backed, this is the cheapest and most prudent option.

HSBC, for so long the golden child of British banking, does the same thing when it comes to the Americans. Its European regulatory strategy is rather different, involving paying the piper where necessary, combined with a mixture of pouting and denial on other occasions.

Barclays is different again, taking a case by case approach on both sides of the Atlantic. In some cases it is fighting, such as with the American attempts to fine it over the way it operated its dark pool share-trading exchange.

With the Libor fixing it paid up early, and took a heavy reputational hit as a result. Which might help to explain its dillydallying over settling the foreign exchange rigging case that has been brought against it. The outcome is still in the air, but the £800m sting in the tail of these results doesn’t suggest taking it slowly is working out terribly well.

It is possible to do banking the right way, as TSB appears to be proving.

One of the highlights of a decent set of results was the £700m of new mortgage business it put on through a newly created unit designed to service mortgage brokers.

This success shouldn’t come as too much of a surprise. TSB is unusual in that it gives those brokers direct access to its mortgage underwriters, something usually only available with the smaller lenders (and at the rate TSB is growing it won’t be long in that category).

This matters, and not just because it makes brokers feel loved. It allows them to explain why a client with a few issues might be a better risk than might appear to be the case from what a form might show.

Before the original TSB was taken over by Lloyds, it used to describe itself as “The bank that likes to say ‘yes’.” This facility means it avoids a failing common to too many of its rivals, encapsulated by a catchphrase of more recent vintage: “Computer says ‘no’.”

TSB thus represents a positive competitive force in UK banking.

But it comes at a cost. The bank has to have more mortgage underwriters in place than some of its rivals and they’re more expensive than the salespeople who represent the main – or only – point of contact for brokers at most of the big lenders.

Now TSB is about to be taken over by the Spanish Banco Sabadell. The TSB chief executive, Paul Pester, says he plans to stay on, but it remains to be seen for how long.

It also remains to be seen whether Sabadell will be willing to persist with worthwhile, but costly, innovations such as TSB’s giving mortgage brokers direct access to underwriters.

The takeover of TSB is good for its shareholders. They get a nice premium instead of being asked to fund an acquisition, which was TSB’s other option for dealing with the dilemma of having a balance sheet that is too small for its cost base.

Whether it will prove good for British banking, and for people seeking an alternative from the big four and their rotten recent history, is open to question.