17th June 2014
The TSB share offer, which closed yesterday (Tuesday 16 June) afternoon, has failed to generate the throng of eager investors that Royal Mail created. If anything, there was a longer queue at my local branch’s cash machine writes investment journalist Tony Levene.
That’s hardly surprising. Could any investor – even a novice – punt cash at an asset which could cost 220p or 290p or anything in-between? Would anyone buy anything in a shop where there was such vagueness over price?
At the top, it’s twice what even the discredited Co-op Bank was prepared to pay a year or so ago. At the bottom, it’s still one and a half times. The Thatcher privatisations all came with a fixed value so everyone knew what they were getting.
And there are loads of doubts over where its future earnings will come from. It is “banking” on mortgages -about the most cut-throat area in retail banking where both trading margins and regulatory capital are under constant bombardment. Adding to that its statement of no dividends for three years, gives a package that investors will say “no” to.
Anyone hoping for a Royal Mail price surge is likely to be severely disappointed. But beyond the particulars of the TSB offer, why would anyone want to buy a retail bank?
While they may have a future existence, it is not a glittering one. Banks have three main activities: protecting and transmitting our money; lending to businesses and home buyers; and investment or “casino banking”, the source of many woes. There’s no reason why all happen under one roof – it’s an historical accident.
TSB only has the first two – it makes a virtue of “boring” but it ignores what could happen. Banking functions such as current accounts or personal loans or mortgages are moving elsewhere. It’s new (or newish) technology, again.
Until a generation or so ago, most people collected wages or pensions in cash. Then they paid for everything with coins and banknotes. Now most people depend on banks to transfer their money safely from source – employer, pension provider – to their accounts, and then move it on to pay for goods and services.
Why does a bank have to do this? It is purely mechanical. An online payments system such as Paypal could carry out this function. Or a retailer. Or one of those internet search engines that already know more about us than the nosiest bank manager ever did.
You don’t require physical premises on high streets with security designed for a Bonnie and Clyde era. Thousands have gone already – many more will shut. Few ever visit a bank or building society branch – but they can be useful at times and important for some, so they won’t all shut.
Personal cheques still tie many of us to banks. But while the plan to end personal cheques by 2018 came to nothing, they will instead wither away. The new PayM system – most have yet to try it – lets you transfer up to £250 a day to family, friends, charities, local businesses, with just a mobile phone number (provided both parties have signed up). It’s instant, free to use and cheap to run.
But that’s just the start. The newly created Payment Systems Regulator, due to be fully operational next April 2015, sees one of its main tasks as encouraging innovation. As we collectively carry out seven billion transactions a year, worth more than £75trillion, it probably won’t stop with PayM.
What about the banks as lenders to business and individuals? The biggest borrowers don’t need them – they can go direct to financial markets. Many homebuyers already go to specialist mortgage outlets, often funded by international investors.
And “crowdfunding”, the online matching of those needing cash to those with spare money, can finance small business or personal borrowing. There have been trials foreign exchange – I’ve got dollars which you want and you have euros which I want.
These are still not even a corner shop on the money scene, and some schemes are bound to fail. But this “peer-to-peer” concept suggests the power of the banks could eventually fade, they are too big to turn themselves into crowdfunders.
As for investment banking (not a TSB function), most – including many working for banks – would be very happy to see it go back into the casino. The banks have resisted calls to hive off investment banking. But separation will likely happen anyway.
Old fashioned bank managers only needed the mantra “three-six-three” (that’s pay savers 3%, charge borrowers 6%, and be on the golf course by three o’clock). They no longer exist. The banks over which they once presided could follow them into history.