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Apr 29

The Bank that likes to say “Si”

The Trustee Savings Bank can trace its roots back to the first savings bank founded by Henry Duncan in Ruthwell, Dumfriesshire in 1810. But its recent history has been a roller coaster and  banking systems are at the heart of that story.

TSB4meThirty years ago the Trustee Savings Bank was a up and coming UK bank – one of the mutually owned banks and building societies that benefited from the enormous cash injection generated by its flotation on the stock market in 1986. Their pop advertising slogan was “TSB – the bank that likes to say YES”.

TSB said “yes” to a merger with Lloyds Bank in 1995 to form Lloyds TSB. As the “boring bank” in the saturated UK market, the only way that Lloyds could grow was by acquiring other banks and financial services companies. Acquisition was almost an addiction for Lloyds. TSB was one of a number of takeovers in the 90’s including Cheltenham & Gloucester building society, Hill Samuel, Abbey Life and Scottish Widows, to feed its habit.

But the biggest prize of the merger for Lloyds was TSBs core retail banking system. While Lloyds had spent many years developing their system which was complex and still built around batch processing. TSBs system was built quickly (probably with the investment from demutualisation) for a simpler bank – and most importantly – realtime. This core platform gave Lloyds TSB Group significant cost reductions and other benefits from simplification. It even seemed that the improvement in profitability had cured Lloyd’s addiction to takeovers.

That is until the legendary city drinks party meeting between Lloyds Chairman Sir Victor Blank and Prime Minister Gordon Brown in September 2008. Brown knew HBOS was close to collapse, which would have taken Brown down with it politically. So he offered HBOS on a plate to Lloyds. Lloyds were guaranteed that the deal, which doubled Lloyds size, would escape the scrutiny of the competition authorities. Offering an addict such a fix was too much. Lloyds paid £12bn, provided a pledge to the Prime Minister that it will keep lending to first-time buyers, waived the usual due diligence, and even gave HBOS emergency funding while the deal was rushed though.

While the merger did a avert a total meltdown of the British banking system as a whole it was at an enormous cost. It caused the nationalisation of Lloyds, cost Sir Victor Blank his job (but not his knighthood), and cost the taxpayer £276Bn of support. And to cap it, all the European Commission made the Lloyds group sell a portion of its business on competition grounds.

The one consolation in all of this mess was Lloyds’ core retail banking system. The HBOS business was transferred onto the Lloyds platform in Europe’s biggest banking system migration, bringing both cost benefits and improved and simplified control of accounts. The merger did take the best bits of both companies system – for example HBOS Corporate Online became the groups top end electronic banking system.

Lloyds’ core retail banking system was became a key part of the divestment of business enforced by the European Commission. Lloyds chose TSB and Cheltenham & Gloucester Branches as the business to divest – in what was called Project Verde. The Government’s chosen buyer was the Co-op Bank. The Co-op had been struggling for five years to implement Infosys’s Finacle banking platform. It had also been suffering from its own disastrous merger with the distressed Britannia Building Society in 2009. Typically a merger will involve moving one bank onto another’s existing platform, but the Co-op Bank management decided to attempt to transfer both onto a newly created system at the same time.

This report tells a sorry story of failings in management and governance on many levels. The roots .. lie in a merger between the Bank and the Britannia Building Society which should probably never have happened. Both organisations had problems. Bringing them together exacerbated those problems. It might have worked if the merged organisation had received first class leadership. Sadly it did not.” Sir Christopher Kelly on his Independent Review of The Co-operative Bank

The deal for Project Verde solved Co-ops systems crisis by giving it a platform on the Lloyds Banking system not only for the TSB business but also for the Co-op and Britannia businesses. However it would result in a £300m write-down,  which added to the Co-ops losses and contributed to the collapse of the the deal with Lloyds for Project Verde.

The Project Verde divestment continued without the Co-op, because of the deadline imposed by  the European Commission. Lloyds Banking Group said that the rebranding to TSB Bank would still take place and that the new bank will be divested through an initial public offering in 2014. TSB Bank began operations on 9 September 2013, still running on the Lloyds’ core banking platform.

tsb adThe new TSB was proud of being a local British bank.”Local banking with TSB means that the money belonging to local communities stays in local communities right here in Britain and nowhere else.” This British bank was short lived. Less that a year after the flotation, Banco Sabadell announced last month that it had agreed a £1.7bn takeover of TSB.

Although Lloyds will make more from the sale of its 50% stake in TSB to Sabadell there is one final twist. The takeover will  see TSB’s IT systems transferred from Lloyds to the Spanish bank. This means that Lloyds must pay a £450m dowry to TSB, agreed when it was floated last year. And the lost revenues from the fees TSB was paying Lloyds to use its systems will take the total hit from the disposal to £640m.


Note that although I have had done client work with banks in this article all of the facts are from publicly published sources:

http://www.theguardian.com/business/2008/sep/18/lloydstsbgroup.firsttimebuyers

http://www.telegraph.co.uk/comment/columnists/iainmartin/4975176/Gordon-Brown-broke-Lloyds-and-it-should-break-him.html

http://www.nao.org.uk/highlights/taxpayer-support-for-uk-banks-faqs/

http://www.thisismoney.co.uk/money/markets/article-2827694/Investors-join-race-sue-tax-payer-backed-Lloyds-bank-emergency-takeover-HBOS.html

http://www.itsafinancialworld.net/search/label/Lloyds%20TSB

http://www.computing.co.uk/ctg/news/1855407/lloyds-tsb-picks-core

http://www.computing.co.uk/ctg/news/2238165/coop-could-writedown-gbp200m-of-it-investments-if-lloyds-acquisition-goes-through

http://www.computerworlduk.com/news/it-business/3514381/co-op-bank-failed-it-project-beset-by-management-weakness-claims-kelly-report/

http://www.co-operative.coop/kellyreview

http://www.bbc.co.uk/news/business-27217198

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10052605/How-Britannia-merger-sowed-seeds-of-Co-ops-woes.html

http://www.telegraph.co.uk/finance/newsbysector/epic/lloy/11564363/Lloyds-takes-640m-hit-from-TSBs-Spanish-sale.html

Permanent link to this article: http://transformingfinance.eu/the-bank-that-likes-to-say-si/