Metro Bank has physical assets already and a client base - itās a headstart.
Managing consumer money is where the treasure lies.
JPMorgan and Goldman could provide long-awaited challenge to big British lenders
As Metro Bankās new chief executive revealed an annual loss and outlined a fresh recovery plan on Wednesday, he asked journalists to be gentle in their criticisms. āIād ask that you try to be as balanced as you can,ā Dan Frumkin said, acknowledging the bank had a bruising year.
But despite the unappealing state of UK banking ā which has also forced Royal Bank of Scotland and Lloyds Banking Group to cut their return on equity targets ā two of Wall Streetās biggest names are planning to attack the market. JPMorgan is working on a digital banking offering under its Chase brand, following Goldman Sachs, which is planning to significantly expand the Marcus retail business it opened in the UK in 2018.
After years of false dawns with efforts to boost banking competition in UK, analysts and investors said the latest trend could be one that finally has a serious impact.
āWe do think the existing incumbents are quite handicapped by their branch networks in terms of costs ā we think this probably accelerates the need for them to restructure and be more cost competitive in servicing the retail market,ā said Colin McLean, chief executive of SVM Asset Management, which owns shares in several UK lenders.
By many measures, the UK appears to be a particularly unattractive place to do business compared with JPMorganās home turf. The bankās consumer division generated a return on equity of 31 per cent in the fourth quarter of 2019 ā almost double Britainās best-performing high street lender Barclays.
For that reason, chief executive Jamie Dimon has repeatedly said that āit doesnāt make sense to do normal retail banking overseasā. However, while he declined to give any details on JPMorganās UK plans at an investor day on Tuesday, Mr Dimon added that ādigital may make it differentā.
Goldmanās online-only business has already gathered more than Ā£13bn in deposits since it opened in September 2018. Metro Bankās branch-heavy model took more than seven years to hit the same level.
Marcusā aggressive approach ā offering the highest rates in the market for easy access savings accounts ā has driven up costs for small- and midsized banks that rely on such savers. Tesco Bank, Virgin Money and Yorkshire Building Society were among a string of lenders that increased their interest rates or introduced new products in the month following Marcusā launch, according to analysis by Moneyfacts.
JPMorgan, meanwhile, is expected to go further than Marcus with a faster push into lending, and has lined up an experienced chairman ā former senior City regulator, Clive Adamson ā to lead the business. In addition to its US retail expertise, the bank has a substantial UK-based payments business, which people close to the company pointed to as evidence it would not have to āstart from zeroā in the new market.
With an annual technology budget of more than $11bn, it is hoping that more advanced systems will keep costs low enough to turn a profit even in the competitive UK market.
John Cronin, analyst at Goodbody, said: āIf you look at margins on UK retail banking products and forget about legacy cost structures and conduct issues, margins on some new business are very attractive.ā
Alongside Metroās decision to rein in its branch opening plans on Wednesday, Lloyds Bank and Virgin Money announced a cumulative 1,300 job cuts as part of efforts to reduce the cost of their legacy high street networks.
However, despite the cuts, most executives still believe their old-fashioned networks will provide some protection against the likes of Chase and Marcus.
āThe only people making money in UK banking are the incumbents. And they donāt make it by offering mortgages and personal loans funded by top of best-buy table deposits,ā said a senior executive at one high street lender. āThe incumbents make money out of inertia, infrastructure and their back books.ā
Start-ups such as Monzo and Revolut have attracted millions of customers to their digital-only current account offerings in the past few years, but they have struggled to convince users to make the leap to using them as a main bank account.
In contrast, Metro Bank and Handelsbanken ā the Swedish business bank that puts great emphasis on its branch portfolio ā consistently appear around the top of customer satisfaction surveys.
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