Supermarket rescues bank
Strange things can happen during a credit crunch but Tesco bailing out Royal Bank of Scotland probably says everything about the state of the UK economy. The supermarkets are strong; banks are weak.
When there was a banking crisis in the 1970s it was the secondary banks that were in trouble and they were rescued by the big clearers. This time we have a primary banking crisis and there is no-one larger than the big banks to launch a lifeboat.
The rescue is this time being managed by non-bank saviours – the life companies that stepped to overpay for a stake in Bradford & Bingley; the sovereign wealth funds (rich overseas governments) investing in Barclays, Merrill Lynch and other banks; the UK government that bought Northern Rock and which is providing cash to UK mortgage lenders – and the pension funds left with the rump of HBoS’s unwanted rights issue.
Add to that list the companies buying the unwanted bits of Royal Bank of Scotland to give it some cash and free up its capital. The infrastructure funds that bought its train-leasing business, the foreign insurance companies that might, despite their reluctance, buy Royal Bank’s insurance companies – and now Tesco, paying almost £1bn for the bank’s half of their finance joint venture.
The venture partnership was founded on the principle that Tesco could supply the customers while the bank provided capital and banking expertise. What a funny world we’re in when Tesco is better than the bank at supplying the expertise and capital.
Royal Bank has received a much-needed £1bn - but gained a new competitor that could steal its business in the longer term.
