Scottish Banking on the Rise: A New Era of Expansion

Strategic Insights -

The recent hostile bid by Bank of Scotland for National Westminster Bank has sent shockwaves throughout the Scottish financial community, but it has also brought renewed optimism and a sense of possibility. As one financial analyst noted, the bid has dispelled the fatalistic attitude that had taken hold among Scotland's dwindling number of locally-controlled financial institutions. The bid's rapid acceptance on the London stock market and in the press has been striking, with the Royal Bank of Scotland and Bank of Scotland seen as major players in the Scottish banking scene.

Key Takeaways:

  • Bank of Scotland's hostile bid for National Westminster Bank has sparked a new era of expansion and optimism in the Scottish financial community.
  • The Royal Bank of Scotland and Bank of Scotland have posted record profits in recent years, with group profits of over £1 billion in 1998.
  • The two Scottish banks see England as their principal area for expansion, with around 70% of the Royal Bank's commercial lending and over 50% of its retail business taking place in England.
  • Bank of Scotland's growth has been driven by the development of businesses providing residential mortgages and banking products, operating credit cards under affinity arrangements with various organizations.
  • The bank's chief executive, Peter Burt, has stated that the bid for NatWest is not driven by a need for expansion in England, but rather a "fantastic business opportunity".
  • The heartland of both banks is still Scotland, where they have a combined market share of around 70%, roughly evenly split.
  • The Clydesdale Bank, based in Glasgow, is a major rival to the two Scottish banks, with a pre-tax profit of £158m in 1998-99 and a further cut in its cost/income ratio.
  • Lloyds TSB Scotland, the smallest Scottish clearing bank, has recently undergone centralization and successive reorganisations, but is still struggling to achieve its goals.
  • Edinburgh has become a hub for private banking, with Adam & Co reporting a 50% increase in pre-tax profits this year, taking them to over £5m.
  • Standard Life Bank has experienced stunning growth, with deposits of over £3.4bn from 260,000 customers by August 1999.

Statistics:

  • Bank of Scotland's total business is split 64% to 36% between England and Scotland (Mr. Burt, quoted)
  • The Royal Bank of Scotland has more than 300 branches south of the border (Iain Robertson, quoted)
  • Bank of Scotland has opened around 20 branches in English cities to serve its business clients
  • The two Scottish banks have group profits of over £1 billion in 1998 (reported)
  • The Clydesdale Bank made a pre-tax profit of £158m in 1998-99 (reported)
  • Scottish Widows Bank has deposits of around £700m from 50,000 customers (reported)
  • Standard Life Bank expects to have written around £4bn of mortgage business by the end of this year (reported)
  • The bank now employs 1,200 people (reported)

Sources:

  • "Bank of Scotland and NatWest in £22bn Bid"
  • Iain Robertson, chief executive of the Royal Bank of Scotland's UK unit, quoted in [Financial Times]
  • Peter Burt, chief executive of Bank of Scotland, quoted in [Financial Times]
  • Ray Entwhistle, managing director of Adam & Co, quoted in [Scotsman]
  • Jim Spowart, quoted in [Scotsman]