A couple of weeks ago, I was doubtful about the prospects for the financial services market after the proposed merger between high street banks Lloyds and TSB. I have been offered no antithesis since that leads me to revise that view.
Now we are told that Prudence is to sully herself in the nation’s banking halls. It will be recalled by those who were paying attention to the Tories in Blackpool that Mrs Kenneth Clarke believes her husband is having an affair with Prudence. Who can this luckless lady be? Given the ratings for this Government’s economic competence in the opinion polls, an affair with the Chancellor could only be seen as a case of sleeping your way to the bottom.
Surely, then, Clarke’s paramour cannot be the virtuous Prudence of Holborn Bars, the Prudential’s commercial lady with the heart of gold that invites the nation’s investors, through television advertising, to relieve themselves of their money in her direction?
Funnily enough, I suspect that there has been a liaison. Clarke is Chancellor in the Government that was responsible for the Financial Services Act in the late Eighties. That created the self-regulatory framework that spawned the Securities & Investments Board (SIB), IMRO and the like. Ultimately, that road led to the regulatory debacle over the mis-selling of pensions, an inquisition in which the Pru has suffered particularly.
The Stock Exchange (chief executive: Michael Lawrence – erstwhile regulatory guru of the Pru) then got shirty about the manner in which former Pru chief executive Mick Newmarch exercised some share options just ahead of a key SIB report on the handling of pensions marketing. The Treasury is reliably understood to have had some trenchant views on this matter. Newmarch decided that the game wasn’t worth the candle and departed (and was subsequently exonerated in a mealy-mouthed statement from the Stock Exchange).
In short, the Treasury, through the original drafting of the Financial Services Act and its subsequent attempts to stand up a system of self-regulation in the City, has got Prudence into trouble.
The provisions she has had to make against the pensions mis-selling fiasco has stretched even the mighty Prudential’s resources. Time to seek new sources of revenue. So poor Prudence is forced onto the street – the high street, in fact, to take on the retail banks.
Now, Squire Clarke is a tough man, but he also has a heart. Much of the mess in which Pru finds herself is of his and his predecessors’ making. He must find her shelter. Failing that, he must find her a way of working the streets (philanthropy doesn’t extend to reforming the system that got her there in the first place).
What Pru needs is a banking licence. And who grants those? Why, the Old Lady of Threadneedle Street. Now, Squire Clarke doesn’t always hit it off with the Old Lady’s husband, Eddie George, but he does have some influence over her. What if Pru promised to behave herself and not to cause the Treasury any more embarrassment, could not Clarke arrange for a banking licence to be issued? Well, it’s just a thought.
But enough of saving fallen women. Big banks getting together with promises that size will make everything better are to be treated as suspiciously as phone calls from the Canadian prime minister. Furthermore, the banks’ attempts to exploit housing finance have been risible.
In the early Eighties, the major retail banks poured into the mortgage markets. Then, when the market turned, you couldn’t see them for dust. At much the same time, they thought it would be wizard to be estate agents. Lloyds, the one making all the excited noises about how TSB will make all the difference, launched the Black Horse chain of agencies. Disaster.
So should we have any greater confidence that the Prudential will be any better than the banks? Well, actually yes.
The retail banks labour under the delusion that a high street presence will save the day. That is nonsense. The experience of the likes of First Mortgage Securities demonstrates that the market is happy to deal housing finance over the telephone. It was obvious that this would be the case to anyone who witnessed the explosive success of Direct Line’s cost-cutting tele-insurance service.
The banks are generally awful at capitalising on the opportunities of technology, stuck as they are in a shopfront mentality. So-called clearing banks still charge for taking deposits for rival banks. If the Pru can find someone with telemarketing nous, it should carve up the high street banks.
Apparently, it already has. Mike Harris is the man at the Pru with his finger on the technological button. Among other things, he set up First Direct, Midland Bank’s telebanking service (and very much an exception that proves the rule). The combination of him and the Pru’s long-standing direct marketing and customer focus talents should prove considerably more potent than any further bank/building society consolidations.
It’s just quite amusing that, for whatever reasons, the opportunity should arise from the legislative and regulatory mess that has been made of the financial services industry. Prudence may prove to be the mother of invention.