Private bank warns of the effects of low interest rates
Margins will be squeezed and lending will be slower, fears Hampden chief
HAMPDEN & Co, the UK’s first new private bank in decades, has warned that an ultra-low interest rate outlook will squeeze its margins and hit the banking sector.
It also reports clients putting investments such as property deals on hold following the EU referendum, and says lending is slower than expected.
Graeme Hartop, chief executive, said: “One of the big impacts is the change in sentiment around interest rates being lower.
“That is unhelpful to the banking industry. Clearly we had a rate hold this month but sentiment has changed quite markedly over the last few weeks.”
The former Scottish Widows Bank chief added: “We get margin squeeze, which is important to a deposit-led bank. It makes it challenging to make the economics work in an ultra-low rate environment. Getting any lower, or even into negative territory, makes it even worse.”
Mr Hartop admitted that the bank, which opened its doors in Edinburgh and London in June last year, may not have got over the funding line had the independence referendum gone the other way.
“There was definitely some nervousness from investors which did put a bit of a brake on the fundraising. Soon after that people started doing things again – it certainly helped make up a couple of key investors’ minds.”
On the prospect of a ‘yes’ vote in a second referendum, he said: “It is something we would need to evaluate if it came to that. Broadly speaking we have 50 per cent of our business coming from north of the Border and 50per cent from south. We would need to look at it.”
Hampden & Co’s 2015 accounts published recently show income of £166,000 and a loss of £8.1million, with net assets of £69m – which Mr Hartop said had risen to £100m. Last summer founder and chairman Ray Entwistle said he expected the bank to take two years to reach profitability.
Private banks typically hold twice as much in deposits as they lend out, because their well-heeled clients have less need to borrow, but lending is where there is more tangible margin, and Mr Hartop said deposits were arriving at a good rate while lending is “slightly behind where we anticipated”.
On the profit outlook he said: “A lot depends on what happens in the interest rate environment and the uncertainty Brexit has thrown in... we have seen one or two examples of property-type transactions that might change and people are still thinking through what has happened. Uncertainty is unhelpful for a lot of these clients.”
Hampden’s biggest individual shareholder is fish farming tycoon Alastair Salvesen, with 16.9m shares, while among the next biggest are Ray Entwistle and Lord Smith of Kelvin, each holding three million, according to Companies House filings.
Its cornerstone investors include Hampden Group, the biggest private members agency at Lloyds of London, insurance group Catlin, and two overseas family offices.
Mr Hartop said: “It’s all about quality and we are delighted with the quality of business that is being taken on. We will gradually build that up to a situation where where we hit break-even in a few years and the profitability will grow from there.
“Private banks have performed extremely well over the last 20 years despite the fact there have been two or three significant recessions.”
One reason was the ability of their clients to ride out the tough times, keeping bad debts to a minimum.
“We started out to raise £50m and we raised a bit more than that. We had very strong support from the communities we know, broadly speaking about 250 individual shareholders and four key cornerstone shareholders who have been very supportive. What that has done is to throw up quite a lot of commercial opportunities working with those shareholders, some of whom have very interesting clients who are ideal for a private banking relationship.”
“We have offered a full range of private banking services pretty much from the outset,” Mr Hartop added. “We also have the capability to run accounts in various other currencies which quite a lot of our clients look for, so that has gone down extremely well.”
The bank prides itself on offering traditional banking not only to clients but to trainee bankers, promoting its culture of having no sales targets but a full range of banking skills, all learned under one roof in Charlotte Square, where 50 of the banks’s 60 staff are based. Mr Hartop said: “We have about 10 of the younger generation training up.”
‘‘ People are thinking through what has happened. Uncertainty is unhelpful for a lot of these clients