Why Clydesdale Bank’s interim results signal a tipping point for the challenger banks?

17/05/2017

Clydesdale Bank announced its latest interim results this morning.  The stock market reacted badly to the results sending the shares down almost 6% at one stage. Pre-tax profits fell to £46m from £58m in 2016 because of a series of one-off charges, although once exceptional items are stripped out it rose 15pc to £123m.  Clydesdale’s charismatic chief executive, David Duffy, attributed this to ‘lazy analytics’ from the city analysts who crunch the numbers and reiterated that the Bank had absolutely delivered on its promises.

As a former senior leader within the Bank (I ran Clydesdale Bank International for National Australia Group from 2008 – 2013), it’s hard not to sympathise with Mr Duffy.  The Bank got themselves in a real mess between 2012 – 14 and Duffy has set about the task of restructuring them and getting them back on track with vigour.  In my opinion, he did an impressive job as boss of Allied Irish Bank before that and has continued in a similar vein at Clydesdale.  The underlying profit numbers mark a return towards the better days pre the 2008 credit crunch.

So what suggests that the results might mark a tipping point for the challengers?  Well, the thing that caught my attention was the 2.5% fall in deposits in the six months to 31st March 2017. Although savings grew in H1 2017, compared to H1 2016, this masked a £667m fall in deposits for the last six months.  This is significant because the overall savings market continues to grow at around 5% per annum and is on course to break through the £1.5 trillion mark before the end of this year.

Any saver who has wanted a competitive savings product in the last 5 years has almost certainly had to deposit their hard earned money with one of the new waves of so called challenger banks. The best buy tables have been dominated by the wave of newly authorised banks and new entrants to the savings market.  Since 2008, 24 new or amended banking licences have been awarded (to the likes of Aldermore, Shawbrook and Charter Savings), we’ve also seen an influx of foreign banks (RCI and Ikano for example) enter the market and existing banks have competed for the first time (Ford Money) for savings.  Critics of the market have pointed to the fact that the challengers collectively have barely touched the market share of the big 4 incumbents.

While Clydesdale is no Barclays or Lloyds in terms of size, it’s a significant mid sized full service banking group with almost £30bn of savings deposits.  Clydesdale has aspirations to challenge the big boys themselves.  However, these results are the first sign that potentially the challengers are making an impact on the savings market at the expense of the larger players they are so keen to take on.  One six month set of results for one mid sized banking group can’t be seen as conclusive proof of a step change in the market but it’s certainly an encouraging sign.  It will be interesting to monitor Clydesdale’s full year results and those of the big 4 to see if 2017 is the year the challengers make a significant break through.

James Blower
Founder