WHERE stands Scotland now in The Great Dismemberment of banking? In Scotland over the past week it has been hard to keep pace with yet more cash injections, yet more state aid, and now an extraordinary game of pass the parcel, or pass the branch. The branch you bank with may not be long part of the group you thought it was. And your new bank owner could be Tesco. Or Virgin. Or Ben Thomson. Or Spanish. Who knows?
The crisis has already thrown up glaring weaknesses in Scotland's response. Where was the Scottish Government in what was a critical and defining week for the future of banking in Scotland? Where is the new cadre of Scottish banking leaders to take the sector forward after the worst financial debacle in Scottish banking for more than a century? And where is the evidence that the divestments and disgorgements announced so far will improve competitiveness and strengthen, not weaken, Scotland's skills base in banking and related services?
The biggest change in Scotland is the proposed disgorgement of 185 Lloyds TSB branches from Lloyds Banking Group, by order of European Competition Commissioner Neelie Kroes. LBG will also lose its Cheltenham & Gloucester franchise and the internet banking operation Intelligent Finance. All told, it will be stripped of 900 branches together with £30 billion of customer deposits and 19 per cent of its mortgage assets.
At Royal Bank of Scotland, 318 branches are to be sold, equivalent to 14 per cent of its UK retail network, together with insurance operations Churchill, Green Flag and Direct Line.
How fitting that the week ended with a chilling reminder of what all this is about. Last Friday, RBS – whose rises in revenue, profits, earnings per share and dividends had come to be regarded as being as reliable as the movement of hands on a Royal Mile clock – unveiled fresh operating losses in the third quarter of £1.5bn, or a pre-tax loss of £2.2bn, or a non-core operating loss of £2.2bn, with bad debt write-offs of £3.3bn, all this being presented by chief executive Stephen Hester as moves in the right direction, hopeful signs for the future and an improvement on what went before.
Amid this carnage, customers had to take care over which piece of dismembered wreckage they were clinging to. Some 300 RBS branches in England are to be rebranded Williams & Glyn's and sold off. And with the NatWest name being revived , it means the effective disappearance of RBS as a UK retail brand. Now you see it, now you don't.
This is, by any standards, an epochal redrawing of the business and franchise contours of two giant banks headquartered in Scotland, with the livelihoods of tens of thousands of staff at stake. But glaringly missing from the negotiations over recent events has been the Scottish Government. Indeed, it has been hard to discern what its view is on banking regulation and competition policy.
The writ of the European Commission now appears absolute, that of the UK Competition Commission having been destroyed when Prime Minister Gordon Brown, Chancellor Alistair Darling and Business Secretary Lord Mandelson waived UK competition policy to allow the Lloyds emergency takeover of HBOS to proceed.
Where stands the Scottish Government in all this? Not tall, to judge by the answers to recent questions raised by Wendy Alexander MSP. These answers elicited bare information about a survey of businesses over the lack of competition. This showed that three quarters of businesses in Scotland are with just two banks. Her questions also elicited the admission that, over the last 12 months, the Scottish Government has made no written representations to the Office of Fair Trading asking it to carry out an inquiry into the lack of competition in banking services. What views had the Scottish Government offered to the European competition authorities? No evidence was sought or provided.
This drew a stinging rebuke from Ms Alexander: "Nothing to say to Europe, nothing to say to the OFT, nothing to say on bonuses. They might have to offer a view on the tough issues of the day. Scotland deserves better."
As for a genuinely Scottish presence in banking, the crisis offers an opportunity for a new generation of Scottish bankers to emerge. But while we have banks headquartered in Scotland, we have few up and coming new Scottish banking leaders. There are a few exceptions, such as former Noble & Co boss Ben Thomson who has put a marker down as a potential suitor for the Lloyds TSB branches, Bennie Higgins (now at Tesco) and David Thorburn at Clydesdale. But one struggles to think of other prominent Scots in the field. This is a strange and worrying absence in a country that has long prided itself on its skills in banking.
And many doubt whether those 185 Lloyds TSB branches will by themselves provide a credible base for new competition. Many are in secondary locations and lack the solidity of rival Bank of Scotland and RBS branches. Indeed, the talk is that Ms Kroes may have done Lloyds a big favour in ordering their disposal. The bigger question is whether customers will stay with the new owners and whether the business will be big enough to sustain competition and regulatory pressures.
We may still have banks in Scotland, and perhaps more of them. But that is not at all the same as Scottish banks as once we understood them.
