Coming soon to a high street near you

The British retail banking sector has been at the sharp end of the global financial crisis, with some of the largest names on the high street – Lloyds TSB, The Royal Bank of Scotland (which owns NatWest) and Northern Rock – being either fully or partly nationalised. At the same time mortgage lending in the country is at its lowest level since 2000, according to the Council of Mortgage Lenders, despite the Bank of England base rate being at just 0.5 percent. Conditions are ripe for new entrants to the market to capitalise on consumer dissatisfaction with the market’s existing incumbents.

The Blackstone Group clearly recognises this opportunity. It declined to comment on its future plans, but a source close to the firm said that with abundant opportunity in the UK retail banking sector, “of course Blackstone would be looking”, adding that plans are still at “very, very early stages”.

Rumours have abounded during the first two months of the year that the private equity giant has applied to the UK’s Financial Services Authority for a license to run a deposit-taking institution. In late January CEO Stephen Schwarzman told news agency Reuters that the firm was looking at “one potential situation”. The firm is reportedly planning to found a “traditional” bank under new brand The Home and Savings Bank.

Blackstone would not be applying for a banking license in the UK without a definite idea of what it is going to set up or acquire. Dick Frase, a London-based regulatory lawyer in Dechert’s financial services group, describes the cost of the banking license application process as being “significant” and adds that the FSA is unlikely to grant licenses without a firm business plan in place.

Metro Bank: new banking entrant

Blackstone’s appetite for retail banking assets was demonstrated last year when it partook in the $900 million rescue of Floridian deposit taking institution BankUnited alongside private equity firms Centerbridge Partners and WL Ross & Co and institutional co-investors such as UK-based charity The Wellcome Trust.

The firm is not alone in spotting the opportunity presented by the UK’s retail banking sector. Residents of London may have noticed in February the appearance of a new presence on the high street. Metro Bank – founded by US financial services entrepreneurs Vernon Hill and Anthony Thomson (the duo behind Commerce Bancorp in the US) – is looking to capitalise on the beleaguered public image of the UK’s traditional banks, by offering a customer-centric “upscale retailer” business model. Retail giant Tesco is also scaling up its personal finance offerings.

AnaCap Financial Partners last year became the first private equity firm to acquire a UK-based deposit taking bank, when it acquired Ruffler Bank. AnaCap has since rebranded the niche lender – built up through financing coin-operated vending and fairground machines – as Aldermore Bank and is expanding the business to offer more retail services, such as savings accounts.