Newspaper article The Evening Standard (London, England)

Let's Clear Way for New Wave of Banks

Newspaper article The Evening Standard (London, England)

Let's Clear Way for New Wave of Banks

Article excerpt

Byline: Anthony Hilton CITY COMMENT

IT is a basic rule of capitalism that when a company stumbles, nimble new competitors come into the market to kick it when it is down and to try to grab its business. It is a rule that holds true for most sectors, provided the barriers to entry are not too daunting.

Were Rolls-Royce to trip up, for example, I doubt many would plunge into the jet-engine market. Rolls-Royce products have far too much embedded technology for that to be lightly undertaken, but one can see circumstances where Japanese or German engineering businesses with deep pockets may nevertheless be tempted.

But there are businesses which are dead simple, albeit it is not always easy to make money at them, and banking is quite clearly one of these.

So the laws of free markets would suggest that now would be the perfect time to start up a bank. Most of the existing players are disabled. They are so big they long since given up trying to offer half-decent client service -- with the result that they have alienated and offended almost all their customers at some time or another -- and they are so complex their managements seem to have difficulty working out what business they are supposed to be in.

They seem ripe for the taking.

In addition, and this is surely the key point, spreads on lending in this credit crunch world are much wider than they were a couple of years ago, so new loan business today is far more profitable than it has been for years. People will pay a lot more for credit now that it is scarce than they would when it was plentiful.

In America, they have got the point and in the past few months well over 100 new banks have been formed, often by people who have no particular interest in banking, but who are financially astute and sense an opportunity.

These new banks are not intended to be global leviathans out to pick up the mantle of Citigroup. …

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