WHATEVER HAPPENED TO GENTEEL LONDON BANKING?
For a business that has been staid and secure for as long as British banking, the recent scenes have come as quite a jolt. On Apr. 28, Sir John Quinton, the bespectacled chairman of Barclays Bank PLC, stood at a press-conference podium, stubbornly denying that he was being forced into retirement by shareholders and directors fed up with the bank's performance. On the same day, in another part of the City of London, Lloyds Bank PLC announced what would be Britain's biggest bank deal ever: a hostile takeover offer of $6.5 billion for rival Midland Bank PLC.
A wave that has rocked the rest of the financial world is now washing over the City. Swept away with it is the charmed life of British bankers. More and more, the tradition of paternalism is being dropped for coldhearted ruthlessness. It comes in the wake of four years of ever-mounting bad debts, tougher competition, and skittish shareholders. "The days of playing golf and hanging out are over," says a senior London banker.
As in the U.S., tens of thousands of jobs are being slashed, and heads are rolling from the local branches to the top. In addition to Quinton's unexpected retirement from Barclays, the chairman of Midland and the CEO of National Westminister Bank PLC have recently resigned under pressure.
In Britain, the new element is the urge to merge, which is gobbling up competitors to fortify domestic bases. "We're in for a fundamental restructuring of the banking system," says Lloyds CEO Brian Pitman. "It's happening all over Europe."
TRUMPED ACE. Executives at Lloyds and other banks contemplating mergers hope to reduce costs and raise margins by eliminating overlapping services and slashing overheads. If Lloyds' offer for Midland goes through, as many as 1,000 of the two banks' 3,745 branches would close and the Midland name would disappear. Some 20,000 employees, out of a combined corporate work force of 110,000 in Britain, would lose their jobs. The payoff: an estimated savings of $1.2 billion a year by 1996.
Even if the Lloyds deal is blocked by regulators who are fearful that it might penalize small-business clients, banking experts figure there will be no stopping a faster pace of mergers in Europe. The single market, which will allow financial institutions to peddle their products throughout the European Community, will hasten the trend. Already, Spain's Banco de Bilbao and Banco de Vizcaya have merged, as have Algemene Bank Nederland and Amsterdam-Rotterdam Bank in the Netherlands.
Robin Monro-Davies, managing director of credit analysts IBCA Ltd., foresees a merger wave sweeping the building societies, which are Britain's equivalent of savings and loan associations, and smaller banks on the Continent. "Banks are no longer protected," he says.
If Lloyds manages to bag its prey, it will trump a $5.5 billion buyout agreed to two weeks earlier between Midland and the parent of Hongkong & Shanghai Banking Corp. But the two deals could not be more different: Hongkong and Midland have bold ambitions for a global bank with a strong presence in Asia, Europe, and the U.S. It's an admirable vision but one that recent history suggests is difficult to pull off. By contrast, Lloyds, which has become Britain's most profitable and best-managed bank--after being pummeled by Third World loans a decade ago--would concentrate its resources in Britain.
Lloyds' tack is also the opposite of its chief rivals, Barclays and Natwest. Those two have little to show for their U.S. and European expansions, but they want to keep a strong global reach. Whatever their strategy, banks are going to be operating on a much tighter leash.SHAKEUP IN THE CITY
Smallest but best managed of the Big Four, now plans $6.5 billion bid for rival
Needs help. Had agreed to $5.5 billion takeover by Hongkong & Shanghai, before
Lloyds stepped in
Chairman Sir John Quinton announces early retirement after profits slide and
Olympia & York debacle
Profits fell 78% after big loan write-offs. CEO resigned in March
DATA: BW, IBCA LTD.
Richard A. Melcher in London