Challenger bank proves to be a challenge for the regulators

Mark Kleinman
Follow Mark
EVERY little helps.” Tesco’s ubiquitous advertising slogan would serve as an equally useful mandate from banking regulators as they seek to augment the capital and liquidity bases of the UK’s big lenders.

Negotiations between the industry and the Prudential Regulation Authority have taken weeks longer than expected, but it has already become clear from events at the Co-operative Bank that “too big to fail” lenders are only one part of the problem.

A capital hole of potentially more than £1.5bn at the Co-op highlights the fact that the regulatory underlap which blighted British banking before the crisis has far from disappeared.

Efforts by the Prudential Regulatory Authority to orchestrate the appointment of the Co-op arm’s new chief executive is evocative of stable doors and horses. Nor is the Co-op the only one of the newcomer banks that regulators have had cause to monitor.

I understand that for approximately three months last year, Tesco’s banking arm was on the official watchlist of the Financial Services Authority owing to concerns about the adequacy of its IT systems.

The retailer’s operation now has a clean bill of health, but its serially-delayed plans to dive into the current account market remain patchily-formed.

This was not the vision hailed by George Osborne as he set out plans for a wave of upstart challengers taking on the entrenched oligopoly of the existing players. After all, regulators were not supposed to be the ones facing the challenge from their emergence.

The most unlikely business story I’ve seen since my last column a fortnight ago? A Sunday newspaper’s breathless suggestion that Kate Swann, the soon-to-depart chief executive of WH Smith, had sounded out Roger Holmes about the idiosyncrasies of running Marks & Spencer (M&S).

Swann is an unlikely, though not an impossible, candidate to run Britain’s biggest clothing retailer.

But even if she was in the frame to succeed Marc Bolland, I doubt she’d be seeking advice from a predecessor who left the chain nine years ago, and who was in the lame duck bracket long before Sir Philip Green turned up waving his chequebook.

More plausible is the idea that Swann might be invited to join Change Capital, the private equity vehicle that was founded by Holmes and his erstwhile M&S chairman, Luc Vandevelde.

What I do understand to be the case is that Swann has been approached by buyout firms including Advent International, owner of the DFS furniture chain, about becoming an operating partner.

The discussions are tentative, and given Swann’s youth, the odds must be on her instead taking a full-time executive’s role. There’s unlikely to be a shortage of interest – although given the dearth of big-time vacancies in the retail sector, she may be called upon to deploy her cost-cutting discipline elsewhere.

With Wimbledon’s conclusion and two Ashes series to look forward to, sport-loving Sir Mervyn King could hardly have hand-picked a more propitious time than the last day of June to end his second term as governor of the Bank of England.

Sir Mervyn won’t, though, be spending his entire post-Threadneedle Street summer in the posh seats in SW19 and at Lord’s.

Friends say he intends to relocate to New York for some time as he deliberates over the options for the next phase of his career.

He might bump into Bob Diamond, although going into business with the former Barclays chief executive – whose ousting he ordered last year – is not thought to be high on the governor’s agenda.