Back-to-basics bank has challenges ahead
Dr Paul Simmonds, of Warwick Business School, has commented on TSB’s flotation.
He said: “The market still has reservations over the banking sector, which has yet to fully recover from the maelstrom that enveloped it in 2008, so Lloyds has had to price the TSB shares at a substantial discount of around 20% to its net asset value to make the share sale a success.
“TSB will have a substantial mortgage book which could provide increased margins and profits should, as is expected, interest rates increase in the near future. In addition, the bank’s brand is relatively untarnished by the recent problems of the banking sector. It will market itself as being a back-to-basics bank, which will appeal to many customers frustrated by the existing big banks that dominate the high street and the headlines when they pay huge bonuses to investment bankers.
“However, TSB will face challenges with lots of new competitors on the high street, including Tesco Bank, which now offers a current account; Marks & Spencer, with partner HSBC, which is developing its offering; and other smaller banks such as Metro Bank and Virgin Money.
“Also, RBS is subject to a similar post-government support European Commission requirement to dispose of branches which it is close to achieving by resurrecting Williams & Glyn’s, a high street brand it absorbed into RBS in the 1980s.
“The government is keen to have more competition in high street banking, but is there enough room for all the new banks? Plus, with the new challenger banks generally free of the baggage of the established banks and therefore potentially attractive acquisition targets, could we see a round of consolidation – as has happened so often in the industry in the past – that would result in competition being stifled and domination by the big banks being restored?”
