While Sir Richard Branson’s Virgin Money and former Abbey boss Luqman Arnold circle beleaguered bank Northern Rock, Abbey’s current owner Grupo Santander has been courting rival Alliance & Leicester (A&L).
Spanish giant Santander has made little secret of its plans to expand its UK presence to take on the “big four” – Barclays, Lloyds TSB, HSBC and Royal Bank of Scotland. It is understood to have held talks with former building society A&L before Christmas, prompted by the bank’s 40% share price slip as a result of the global credit crunch. Although discussions are not active, Santander has refused to rule out making a bid, and experts can see why.
A&L has been hit by the credit crunch, having to secure an estimated £10bn in funding to keep the business ticking over until the second half of this year. Fears over its funding position made A&L the worst-performing UK banking stock in 2007 after Northern Rock. Yet it is the UK’s seventh biggest bank, with a small, but fast-growing business and a well-balanced mortgage portfolio, making it an attractive option.
A&L would give Santander a boost in terms of customer and branch numbers, in addition to organic growth under Abbey. Should the two be rebranded as Santander – as the industry expects Abbey to be – it would give the Spanish bank a real high street and online presence in the UK.
Similarly, the brand has previously been mooted as an acquisition target for other overseas financial services companies – including Bank of Ireland, National Australia Bank and Credit Agricole of France – all anxious to gain a toe-hold in the lucrative, but highly competitive UK market.
Moreover, A&L (and its rivals) are unlikely to be courted by the existing big four, adding little to their branch networks and detracting from potential ambitions to grow globally.
Even a lack of brand presence and awareness should do little to dissuade suitors wanting to build their own brands through acquisition. Previously, the bank, which demutualised and floated on the London Stock Exchange in 1997, had ploughed millions into mainstream advertising, including TV campaigns and sponsorship of hit ITV show Who Wants to be a Millionaire?, but has done little in the past five years.
As Paul Gordon, managing director of financial services specialist advertising agency cchm:ping, says: “A&L historically had a tradition of being a strong brand, but it hasn’t invested in this for some time.”
Head of marketing communications Lesley Vernon says that is a deliberate attempt to further its “low cost” business model and differentiate itself. “We cannot afford to outbrand or out-branch our major competitors,” she adds. Instead, she says the bank focuses on offering value products and direct channels, such as the internet and telephone banking.
“We tend to focus on direct marketing to get our message to our target audience,” continues Vernon. “We do not want to spend millions on brand advertising to compete with bigger banks. In doing so it would be difficult to provide value. We are not looking for brand awareness per se, we are looking to grow our business. Brand advertising is about history, customer base and branch penetration, which we don’t have.”
A&L’s roots go back to 1852, but a cluttered merger and acquisition strategy, coupled with its stock market flotation, has made a consistent brand message hard to sustain. Currently, Vernon says marketing reflects the bank’s business strategy, which is built around four core brand values: attracting new customers by offering better value products and services; being simple and straightforward; offering a friendly and approachable service; and “recognising” existing customers.
The bank prices “aggressively” in certain markets and products against the big four. “Our customers are actively seeking a good value proposition,” adds Vernon. “Where we are going is straightforward – offering better value. We are operating in an industry where, in general, customers are negative towards banks and cynical about over promising and under-delivery.”
However, one executive questions the long-term value of such a strategy, saying that by pinning its marketing communications entirely on a product-based strategy, A&L may lose out in a congested market. The source says: “Some brands, such as ING, have made no secret of their ‘value’ proposition, but to rely entirely on that can be foolhardy. If they are no longer offering market-leading rates or value, brands can come unstuck.”
Another points out that it is not clear what A&L stands for. Vernon concedes that non-customers can still see it as “just” a savings and mortgage bank, but says investment in product-led advertising, focusing on products such as its current accounts, will redress this.
For the moment, the bank insists it is business as usual, saying it will continue with its sales-led approach. However, Gordon predicts the coming year will be dominated by consolidation in an overly cluttered UK market, and that the biggest sale could yet be that of A&L itself.
Facts and figures
Alliance & Leicester
The Leicester Permanent Building Society is founded, becoming operational in January 1853. It merges with the Leicester Temperance & General in 1974
Brighton & Sussex Equitable Building Society is founded.
From the mid-1930s it amalgamates with other local societies, becoming The Alliance Building Society in 1945
The Alliance and the Leicester building societies merge to form Alliance & Leicester Building Society, with assets of £7bn
Alliance & Leicester demutualises, becoming a bank and a listed company
Alliance & Leicester has 5.5 million personal customers and 3.5% of the UK mortgage market, 1.64 million active current accounts, personal customer deposit balances of £22.7bn and £3.6bn unsecured personal loan balances. It has about 76,000 business bank accounts and its branch network totals about 250, although customers can also go to Post Office counters