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Will Lloyds take the chance to build a better bank?

A build your own bank kit

While the collapse of the Co-op’s bid to buy hundreds of Lloyds bank branches is a setback for the banking landscape, I think there’s still a great opportunity for a better bank to emerge.

The pace of reform in Britain’s banking industry has been painfully slow. And it was dealt yet another set back when the Co-op announced it was pulling out of its agreement to buy the 632 branches which Lloyds is obliged to dispose of by November.

If the Co-op’s deal with Lloyds had come to fruition, it would have created a bank with a branch network just shy of 1,000 – and a business that held a 7% share of the current account market. Not only would this have transformed the Co-op into a serious challenger to the big five banks, it would also have created another powerhouse of a mutual on the high street.

The Co-op’s mutual ownership structure means that, like Nationwide Building Society, it’s owned by its customers. And as customers and owners are one and the same, there are no conflicting interests between the two.

A new challenger to the banks

The same, however, can’t be said for most of our big banks. Their biggest challenge is to find a way of meeting the insatiable demands of their shareholders for greater profits while still playing fair with their customers – a challenge they’ve largely failed to meet over the past decade.

But in spite of the collapse of this deal, there will still be a new challenger bank on the high street towards the end of this year. Lloyds’ 632 branches are already in the process of being hived off into a separate subsidiary, and by September they will be rebranded under the old TSB name (‘The bank that likes to say yes’ – remember them?).

Although it will begin as a wholly owned Lloyds subsidiary, it already has a separate management team headed by former Virgin Money chief executive Paul Pester. It will complete its separation from Lloyds when it is floated on the London Stock Exchange next year.

Pester and his team have a unique chance to build a bank from scratch. They can create a culture that genuinely puts customers first, as we’ve been calling for with our Better Banks campaign. At the same time, the team can set out a longer-term strategy to shareholders, distancing the bank from the short-termism that has dogged the rest of the industry.

Although there are plenty of new banking challengers emerging from the wings, TSB will have an enormous advantage by hitting the ground running with a significant market share. In a world where retail banking margins are much slimmer than they once were, scale is a crucial ingredient to a viable business.

The struggle for new banks

Other newcomers, such as Metro Bank (which has reported losses of £100m in the past three years), have been learning the hard way how expensive it can be to grow a bank one branch at a time, while resisting the temptation to squeeze money out of its customers.

So while it’s a great shame that the Co-op now looks unlikely to ever become a major player in the UK banking market, the collapse of its deal leaves an opportunity for a new private player to show that it is possible to please customers and shareholders at the same time.

Genuine competitive pressure from within the industry can only accelerate what has so far been very slow progress in reforming our banks.


It seems to me naive to think a joint stock company – like most banks – exist to put customers first. They exist to provide a return for their shareholders, and to keep investors they need to be competitive with other similar institutions. Having said that, their success as a bank will be in looking after customers – that should be key to their successful business – so customers should be nearly first equal to shareholders.

Nationwide, as a mutual, again needs to maintain a healthy business model, whilst their profits should help customers rather than shareholders. However, although I am a satisfied customer of Nationwide I do not see these benefits appearing as better interest rates or more competitive mortgages for example. Where does that money go then?

The Co-op failed as a bank because it made reckless lending decisions. Was that really the organisation to lead the way with a new bank using the Lloyds surplus branches? Just more of the same, if you ask me.

Barry Keating says:
31 May 2013

I have held an account at LLoyds for over 40 years and apart from one inconsiderate manager who caused me to change my account to a different branch my experience has been generally very good. My current branch is ex TSB, the staff are extremely effecient and friendly.

My experience of Lloyds is their responding to a deposit of £50 k with gross inefficiency and a lack of thanks.

Like many customers, I shall need a lot of convincing that this leopard can change its spots.

It would be very welcome if they did try to build a better bank, but give us a break, who honestly expects them to? They’re in it to make money any way they legally can and who do you think they expect to make it from? I have a relative who works in a bank and if I told you some of the stories about how they push staff into selling extras you wouldn’t believe me.

Steve says:
5 July 2013

My new Lloyds TSB card came in an envelope that looked like it was junk and since I happened to pick it up in a place where I did not feel the card inside I didn’t open it. 30 days later my card valid until 05/14 was cancelled without any other notification to me and then I tried to use it at a petrol station!

When I called them to find out what was happening I failed their security questions because I couldn’t remember how much money had been paid in on the 20 June so they wouldn’t help me. I was told to call in again and maybe their computer would ask different questions – I did and it didn’t. I said since they had my mobile perhaps they could call me and give me some help but I was told telephone banking cannot do this.

Their ‘general’ advice to me was to use another card and report my new card lost and then I’d get another in about a week. So for now I am a Barclaycard customer and funnily enough I will not call their lost and found to report the card missing but I will be looking for a new bank.

It’s been almost 40 years and the one day I have an issue and really need help from them Lloyds or TSB treated me with contempt.

I can not wait until Lloyds off loads Try Something Better (TSB). Lloyds was always a high class bank until TSB brought it down to the gutter level!! Can not wait until October to finally be back in Lloyds Bank again! Good riddance to TSB!