Kent confirms Flowers deal as banks prepare fightback

Kent Reliance Building Society yesterday confirmed its attempt to shake up the savings industry as the banking industry prepared to launch a fightback at the British Bankers' Association's annual conference.

The building society said it was in talks with the US private equity firm JC Flowers to create "a new capital structure" for the business which would allow the institution to retain its mutual structure. Any deal would be likely to involve Flowers investing £50m for a 49 per cent stake in a new holding company. Kent's members would hold the other 51 per cent.

The move could herald a deal spree, giving Kent – best known up until recently as the shirt sponsor of Charlton Athletic Football Club – the capital to dramatically expand its business and create a new force in the savings and home loans market at a time when the Government is keen to see fresh competition in the industry. The announcement of a formal deal could come today, although sources close to the talks said it was more likely later in the week.

Several "new" banking or financial services groups are busy jockeying for position in an attempt to take on the existing big banks, which remain deeply unpopular among the public as a result of the financial crisis.

But Angela Knight, the chief executive of the British Bankers' Association, said: "Life does look rather different now than it did a year or two years ago. I think our first message is that there are a number of parts to the economic recovery. Banking is only one part but there is a need for honesty, openness and a need to address the other issues ... The solution to economic problems is not just about shaking up banking regulation. If you look at the degree to which countries have been affected by the financial crisis a lot of it boils down to how they ran their economies before it started. It's been very convenient to blame banks for everything and we don't run away from our share of the blame. Nevertheless, a lot has changed about banks but you still have to change other areas, particularly the problem of the budget deficit."

Mark Hoban, the financial secretary to the Treasury, who will today launch a consultation on the Government's plans for a levy on bank balance sheets, told banks last night that the "fate of public trust" was in their hands. He added: "I don't need to tell you that the next bonus round will be conducted against a background of continued pressure in the private sector. And by visibly reforming the way they operate, banks can show that they exist to serve the whole economy, not just their own interests."

Battle for the banks

'The old boys' network': New Bank

Led by Lloyd's of London's chairman Lord Levene, it has been charging around the City making an awful lot of noise in recent days. Has the support of some heavyweight investors and planning a float ahead of bidding for more than 600 Lloyds Banking Group branches. Backers include the former European commissioner Charlie McCreevy, the former Treasury Select Committee chairman John McFall, and David Walker, who conducted a review into banking governance. Already been in to see the Treasury. But there's a glaring hole at the centre of the project: while its backers are all distinguish, not one of them has any experience of running a retail bank. Verdict: Lots of mouth, so far no trousers

'Branson's band': Virgin Money

Under bidder for the Royal Bank of Scotland branches that look to be heading to Santander, but Sir Richard Branson has made his ambitions quite clear and won't want to retire from the field with egg on his face. Also has big money backing from the US.

It has everything New Bank does not: a banking licence and executives with pots of experience. Also battle hardened from that RBS bid. New Bank might just kick them into fifth gear. Verdict: One to watch

'The Spanish Armada': Santander

Been here since the 2004 acquisition of Abbey, but with plans to float off the UK arm after as a new bank after the (likely) purchase and integration of more than 300 Royal Bank of Scotland branches. The most credible challenger to the established order. It has got scale, experience and market presence. Also owns Alliance & Leicester and the non-toxic parts of Bradford & Bingley.

The Spanish parent is smart, savvy and successful. But there's always the feeling that it's a bit too good to be true. Verdict: Clear Cup Favourites

'Sheep and wolves': Flowers and Co

Not a bank, but no longer (quite) a building society either, JC Flowers deal with Kent, to be signed in the next couple of days, could create a new force providing a platform for (much-needed) consolidation among the smaller building societies. Ultra-efficient, and perhaps progressive, the presence of the US private-equity firm is a worry and much will depend on how it conducts itself. Either an idea whose time has come or a disaster waiting to happen.

Verdict: Good potential, but jury out.