A standard bearer for probity
WHILE the big players on the Scottish banking scene have been hitting the headlines again in the past fortnight, posting big losses and reigniting controversy over bonuses, Edinburgh-based Standard Life has been going quietly but determinedly about its business.
For Royal Bank of Scotland and Lloyds Banking Group, which owns Bank of Scotland, much of the focus has been on progress with their unenviable task of trying to effect big branch sell-offs in the UK required by the European Commission because of the billions of pounds of state aid these institutions needed amid the financial crisis.
And RBS appears to have been facing ever-greater pressure from the UK Government to retrench by disposing of part of its Citizens business in the US and continuing to slim down its investment banking operations, so that its focus is increasingly on its domestic operations.
Life, pensions, and investments giant Standard Life, in contrast, has been able to stay on the front foot as it tries to make the running in a UK life and pensions sector. This sector has not been the easiest of environments in which to operate in recent years, given the grim economic backdrop and sweeping regulatory change.
At the end of February, just ahead of RBS and Lloyds unveiling big losses, Standard Life announced a deal to hike its presence in the UK wealth management market. It is acquiring Newton’s private client business, an operation which has about £3.6 billion of funds under management, for up to £83.5 million.
Although the price of this purchase is not huge in the context of Standard Life’s multi-billionpound stock market worth, the deal is viewed as underlining Standard Life’s continuing transition from life insurer to a more broadly-based asset management operation.
Standard Life Investments has enjoyed great success in the institutional f und management market. It is therefore logical enough that Standard Life is now trying to hike its presence in the private-client wealth management arena, albeit through acquisition on this occasion rather than organic growth.
Meanwhile, Standard Life Investments has been trying to claim the high ground in the corporate governance field. Two weeks ago, this fund management operation highlighted its attempts to change remuneration policies at banking giant Barclays and insurer Aviva.
In terms of Standard Life’s current prog ress i n the life, p e ns i o ns a nd investments markets, chief executive David Nish has been making his presence felt. However, his predecessor, Sandy Crombie, undoubtedly laid the firm foundations which have allowed Mr Nish to innovate.
Mr Crombie faced a significant challenge to get Standard Life back on track. His success in achieving this, and Mr Nish’s efforts since, mean that this institution stands out as a major success story in a Scottish life sector which has seen more than its share of bad news over the last couple of decades.
Up until relatively recently, the Scottish financial community in general had a widespread and proudly- held reputation f or prudence. The near-collapse of Royal Bank of Scotland and Bank of Scotland owner HBOS, in the wake of the failure of US investment bank Lehman Brothers in autumn 2008, put a serious dent in this overall reputation. HBOS, which was meant to be essentially a mortgage bank, had to be rescued by Lloyds.
However, amid the understandable focus in the UK on the continuing sagas of the big players on the Scottish banking scene, it is important not to lose sight of the resurgence of Standard Life. Neither should we overlook the amazing track record of Edinburgh investment house Baillie Gifford, well-known for a longterm approach that has been enabled by its partnership structure and which has delivered spectacular but steady success over the decades.
Then there is Edinburgh Partners, built from a standing start in 2003 by former Scottish Widows investment chief Sandy Nairn into a player with billions of pounds of funds under management.
All of these success stories have involved the leaders of these businesses setting their own agenda, with a firm idea of where they want to go and some bold action to get there.
There is little doubt that Stephen Hester, chief executive of RBS, and his opposite number at Lloyds Banking Group, Antonio Horta-Osorio, also have a firm idea of where they want to go.
Neither of them was at the helm of their respective institutions back in the scary days of autumn 2008.
However, by virtue of large Government stakes in RBS and Lloyds Banking Group, things are not entirely in their own hands.
RBS’s revelation on February 28 that it is planning to sell between 20% and 25% of US banking operation Citizens in about two years’ time appeared to follow intense pressure for this type of move from the UK Government and regulators.
However, it is far from clear that such a sell-off is the right idea. The timing looks bad, given current valuations. And there is a good chance that Citizens might deliver better financial results for the taxpayer than some of the domestic operations of RBS, given the UK economy i s currently i n danger of recording its third recession since 2008.
The Government should be more aware than anyone of the poor UK economic outlook, amid continuing austerity, given the recent decision by ratings agency Moody’s to strip the country of a triple-A credit rating which Chancellor George Osborne appeared to view as so important when he took office.
David Nish has made his presence felt as head of Standard Life