Time for TSB to come home to Scotland?

After the Co-operative Bank pulled out, Lloyds is now to launch 632 branches as a standalone business on the stock market. Could there be an opportunity here for Scotland to regain a bank headquarters?

The idea only occurred to me during an interview on Newsnight Scotland when Gordon Brewer asked me whether there was a role for the Scottish Government. Technically there is not, since financial regulation and competition policy are reserved to the Westminster Government, but there could be a win-win here for Scotland and increased diversity in UK banking.

Lloyds is being forced to unload the branches by the European Commission, which was concerned about the amount of state aid it received after the disastrous HBOS acquisition in 2009 and the dominance that gave Lloyds in the personal banking and mortgage markets. Co-op was the preferred bidder, but after faffing around for years could not make the deal work.

The branches will now be packaged up as a freestanding bank, but it won’t be a clean deal for Lloyds. It is likely to have to provide the management, some back office services and perhaps some capital for years to come before the business is robust enough to completely cut the umbilical cord.




But the new bank – which will be called TSB – could do well. It will be entirely focussed on UK domestic business and therefore diversified and relatively low risk and start with five million customers, many of whom will be ex-TSB and be prepared to stay with the bank. It won’t be tainted by PPI miss-selling nor Libor manipulation and can start off with a remuneration and bonus policy which wins public support, rather than alienating it.

Analysts have calculated that it could make £200 million in profit and a 10-15% return on equity, peanuts by the standards of the banking Goliath, but respectable nonetheless.

The new bank will have branches across the UK, but with 30% of them in Scotland will be heavily weighted to north of the border, reflecting the strong following for the Trustee Savings movement in Scotland, which was the land of its foundation by the Rev Henry Duncan 203 years ago.


Henry Duncan
Henry Duncan, the father of savings banks


I can think of plenty of old-style dependable bankers who would make good candidates for chair for the new TSB and there is a ready-made headquarters in Henry Duncan House, Edinburgh, the old TSB Scotland head office. Lloyds having emasculated The Mound, the former Bank of Scotland HQ, owe us one.

So what is the role for the Scottish Government?  Get out and start promoting the idea to the UK Government, Lloyds and financial investors. The new bank won’t come north of its own accord, but might if a strong enough business case could be made for it.