Royal rules out ‘mercy killings’ of mutuals

By Ian Fraser

Published: Sunday Herald

Date: March 17th, 2002

THE ROYAL Bank of Scotland has ruled out mounting a takeover or “mercy killing” of a UK building society or mortgage bank, according to its chairman of retail and wealth management Gordon Pell.

When asked if the Edinburgh-based bank intended to strengthen its position in the UK mortgages market through the acquisition of, say, Alliance & Leicester, Pell replied: “Why would I want it?

“I can manufacture mortgages, I can fund mortgages, I can price mortgages. We have about 5% market share. My market share went up [during 2001], my margin went up. I only sell mortgages when I can make money.”

The Royal Bank’s share of the UK mortgage market is only 4-5%, significantly below its share of the retail banking market, which is estimated at 25-28%. Jon Kirk, analyst at Fox-Pitt Kelton, believes this could be seen as “a gap in Royal Bank’s portfolio”.

But Pell said: “To be in a position like Halifax, with a huge mortgage book, is actually a lead weight. I don’t want to be in that position. If you wanted to be in that lead-weight position you would buy a mortgage brand.

“The mortgage market in this country is a vipers’ nest. It would be naive to think you could stick your hand in and not get bitten You have a market where the product is totally commoditised. Pricing is totally transparent, pricing is awful, and therefore you want enough of it on your book to maintain your position with customers,” said Pell.

“I’m a bit old-fashioned about these things. But if people want to compete with me on a basis that they will lose money, they will get their comeuppance in heaven and all I have to do is hold my breath.”

There has been speculation that RBS wanted to pounce on a mortgage brand ever since the bank declared the integration of NatWest to be proceeding faster than expected. It wants to complete this before making further acquisitions in the UK.

Pell said the RBS was still studying the government’s report on small business banking, published last Thursday after several years of preparation. “We’re ploughing through it and intend to assess it carefully before making any comment.”

But a senior banker at a rival Big Four bank warned that, after effectively imposing price controls on the banks, the Blair government can now expect to be cold-shouldered by them.

“We’re hardly going to fall over ourselves to be helpful now,” said the banker, who preferred to remain anonymous. “These extreme left-wing policies are more likely to restrict competition.”

The banker added: “Brown has had his one day in the sun. Now he’ll pay the price, as the banks’ desire to assist him will be pretty minimal.”

Meanwhile, the Glasgow property scene was last week set alight by news that RBS is seeking more than 150,000 square feet of office space in the city. The bank currently occupies a number of buildings in the city’s George Square area. Towards the end of last year it withdrew from negotiations to buy the remainder of 123 St Vincent Street, later leased to Hutchison 3G.

Property sources said the new Glasgow office would be a regional HQ, along the lines of buildings RBS has taken in Manchester and Birmingham since the NatWest acquisition. They said the bank may struggle to find suitable accommodation this year, but if it is looking further ahead it could look to Atlantic Quay, Central Quay or Pacific Quay.

The Glasgow office may be intended to exploit a looser labour market and lower rents by transferring jobs across from Edinburgh, where the bank’s new Gogarburn HQ will not be ready until 2006.

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Posted by Ian Fraser on Mar 17 2002. Filed under Article Library. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry