Private equity buy-outs and banking do not mix
Are these overgeared pyramids really the people to be buying Britain’s banks?
Before bankers took the title, the financiers we loved to hate were private-equity firms. So now that the banks are being compulsorily broken up, why does it seem a good idea to sell them to yesterday’s villains?
Before the credit crunch – and when private-equity firms could still borrow to buy businesses – they were being lambasted as asset strippers, unaccountable to workers or customers, and interested only in short-term profits. They were hauled before House of Commons committees and subjected to their own governance report.
Are these overgeared pyramids really the people to be buying Britain’s banks? Luckily they have just lost the chance to acquire 318 branches of Royal Bank of Scotland but there are still 200 Lloyds branches to bid for and the whole of Northern Rock. The RBS opportunity disappeared when the Wellcome Trust charity, which was in partnership with the Blackstone private equity group, dropped out.
The Lloyds and RBS branch networks are up for sale because the EU demanded their disposal as a condition for approving their government rescues. Northern Rock’s chain of branches will be sold in its entirety to attempt to recover the state’s investment.
They cannot be sold to one of the existing UK big banks, so disposal will increase the diversity of ownership and choice, but what choice is there for the customers of those branches who will have their accounts and overdrafts sold to a new owner?
An individual or small company might accept their bank being bought by National Australian Bank, which currently owns Clydesdale and Yorkshire in this country. They might possibly accept a sale to Virgin Money and its new backer, American financier Wilbur Ross.
But if any lesson has been learned from the credit crunch it ought to be that customers should consider the status and strength of their banks, and they should question the wisdom of ownership by a private-equity firm. Where would additional capital come from if there was another financial crisis, for instance?
A range of new banks is being encouraged to open in Britain. Customers have a choice whether to move their accounts there, but existing customers of the Lloyds and RBS branches designated for sale will have their accounts sold against their will. Many small firms and private customers will prefer to be part of the state-backed giants than to be moved against their will to an unknown small would-be banker at a buy-out house looking for an exit.
