Understanding UK bank strategies can be difficult. The past year has seen not only Royal Bank of Scotland’s joint acquisition of the Netherlands’ giant ABN AMRO but also the disastrous run on Northern Rock, record 2007 profits at HSBC Holdings and, last month, RBS’s first half-year loss in 40 years, following $11.4bn in writedowns.
The US subprime crisis and the global credit crunch have led to extraordinary volatility and market change, resulting in the temporary nationalisation of Northern Rock in February and the acquisition of Alliance & Leicester, the UK’s 9th largest bank, by Spain’s Santander in July for £1.3bn, less than half its market value at the end of 2007.
UK banks dominate
However, despite severe writedowns among the bigger banks and a downturn in the UK housing market, the 25 UK banks in The Banker’s Top 300 European (EU 27) listing (see UK players maintain sizeable advantage) account for a large 22.5% of the European aggregate Tier 1 capital, almost 50% more than the totals from the 89 German banks or the 10 French banks in the Top 300. In fact, the large UK banks are becoming increasingly dominant, with the four UK banks (HSBC, RBS, Barclays and HBOS) in the Top 10 Europeans accounting for 48.5% of the Top 10 aggregate Tier 1 capital of $613.8bn.
These banks’ diversified and global strategies have served them well. HSBC recently announcing expansion into central and eastern Europe, and though RBS has taken flak for the high price it paid for ABN, it has more than doubled its assets to become the world’s largest bank by assets.
Larger UK banks, including Standard Chartered, look likely to use their diversity to weather the storm and take advantage of market opportunities. The question is whether smaller UK players, such as HBOS, Lloyds TSB Group and Bradford & Bingley, which have adopted a largely domestic UK focus and suffered, have the growth potential to survive and avoid being swallowed up in the way of A&L. In difficult times, diversity provides better protection and better opportunities.
