Challenged challenger banks seek comfort in consolidation
Comment Martin Flanagan
Two interesting issues jump out from Clydesdale Bank-owning CYBG’S takeover offer for Virgin Money. One is whether it shows that the so-called challenger banks to the Big Five (the latter including Santander) are running out of road and cannot make the impact they want without consolidation activity. The other is which way the regulator will jump. Will the Competition and Markets Authority think such a merger takes a challenger bank out of the banking market, and so is not in the interests of the consumer, or decide a Cybg/virgin Money combination will be a more forceful rival to take on the big boys.
The consolidation conundrum for challengers is that one problem they have had is to a large extent they have looked to the rollout of new technology and brands largely untainted by the financial crash to be the stormtroopers for their attack on the bigger, established incumbents.
But it has not worked. Look at the major technology problems that TSB have just experienced, doing serious damage to the brand. Not to mention Royal Bank of Scotland’s “you put your left foot in, your left foot out, left foot in and shake it all about” abortive demerger of Williams & Glyn.
Against a faltering UK economy, the “march” of the challengers, including CYBG, which also owns Yorkshire Bank, has been leisurely and with bumps in the road (witness CYBG’S recent extra £350 million hit from a surge in payment protection insurance claims).
TSB, floated on the stock market in June 2014, was picked off by Sabadell of Spain for £1.7 billion the following year. Specialist lender Shawbrook, floated in the spring of 2015, was acquired by private equity for £868m in June last year.
And late in 2017 Aldermore, another specialist lender and challenger, was swallowed up by South African financial services group Firstrand for some £1.1bn.
Paragon Banking also confirms that it is in the early stages of considering a possible acquisition of Titlestone. Will Metro Bank be the next to hear an acquiror’s knock on the door?
The smaller banks have been trying to gain greater market share in not particularly beneficial market conditions and lacking something of the tailwind of disillusionment with the bigger banks that helped them after the financial crash.