CLYDESDALE Bank has shrugged off the potential challenge of the proposed Lloyds-HBOS superbank and insisted it can fight its own corner as a niche player.
Chief executive Lynne Peacock and chief operating officer David Thorburn said they did not expect to suffer any further competitive pressures than is currently the case.
The proposed merger of Lloyds TSB and HBOS will create a bank controlling abo
ut a quarter of UK current accounts and 28% of home loans with an even more concentrated market share north of the border. But senior management at Clydesdale, owned by the National Australia Bank, remain unfazed.
"Will it be any harder competing with a combined Lloyds-HBOS than it is at the moment? I don't see it," said Thorburn, speaking after Clydesdale reported flat year-end results.
Peacock said: "We have to face some big banks already – HSBC, Barclays. At the end of the day you can either fear them or have confidence in what you are doing yourself."
The duo admit that Clydesdale may not be able to compete on price but the bank – and its sister the Yorkshire Bank – is positioned to focus on relationship banking and service.
The two banks have emerged from a crisis of their own four years ago when there was speculation that National Australia would sell them.
Last year's underlying profits rose 11.9% though bad debts meant pre-tax profit was flat. In the current climate, however, this was considered an encouraging performance.
Peacock and Thorburn, who have led the turnaround, have sought to distance themselves from the "irresponsible lenders" tag that has tarnished the whole banking sector.
Peacock said the crash could prove positive in the longer term. "These corrections are not a bad thing. They are painful at the time but they put things on a more sustainable footing," she said.
As part of the restructuring she has made a big push into business and corporate banking which is now reaping rewards. The specialist acquisition finance business is benefiting from a lack of exposure to wholesale markets and is extending its interest in deals above £50m.
Jack Ogston, head of the division, said internal funds such as retail deposits, bonds, securitisation and the National Australia group, have been the source of required funding for client firms.
"We don't like wholesale funding – 85% of our lending is from internal funds," Ogston said. He said there would be a greater push into the £50m-plus bracket though this would not be to the detriment of smaller deals.
He urged companies to be more realistic about their projections – cash flows, order books, valuations. "And they need to have a Plan B. What is the fall-back plan? This is a good question to ask at any time, but it is particularly pertinent now," he said.
Ogston said it would be an exaggeration to say that Scotland had a two-speed economy, but "undoubtedly" oil and gas was forging ahead.
He believes there will be more mergers and that private equity will begin buying companies.
The bank's latest funding package, just completed, is providing further working capital of about £3m to oil and gas engineering firm Red Spider Technology in Aberdeen. The £5m-turnover company has developed equipment to improve the flow of oil.
• Further pressure is expected on the government to ease its ban on nationalised banks paying dividends.
Earlier options to pay a dividend would encourage investors to buy the shares and ease the banks' demands on the government's £37bn bail-out package. The Lloyds TSB circular to shareholders will be posted during the first week of November, with the general meeting to approve the acquisition and capital raising expected two weeks later. The acquisition and capital raising should be completed in January.
RBS will publish its prospectus on Friday and is expected to reveal further writedowns.
The full article contains 650 words and appears in Scotland On Sunday newspaper.
