The Big Four British Banks

This is a book about the evolution of the British commercial banking industry, as reflected primarily in the experiences of its four clearing banks — Barclays, Lloyds, Midland, and NatWest. The book concentrates mainly on the period since the 1960s, when the cosy, cartel position of the UK banks began to erode in the face of increasing competition. Though acknowledging the importance of history in shaping more recent developments, I limited myself to the past few decades for at least two reasons. First, banking scholars had already produced many detailed studies of the industry’s long history.¹ Second, the changes taking place since the 1960s have been so momentous that they merit intensive study in their own right. Moreover, having reviewed several studies on how the industry had evolved before then, I could take that context into consideration in analyzing what was happening now.

I argued in Chapter 1 that the banking industry worldwide has evolved since the 1960s from a protected, cartel-like state to one subject to continued competitive threat. This parallels the evolution of financial services more broadly, from a condition of segmentation in which sharp market boundaries separated investment banking, commercial banking, insurance, home mortgages and asset management to one in which each was diversifying onto the others’ territory.¹ The driving forces behind these changes — globalization, the rise of capital markets, new technology, lowered entry barriers, and a consequent disintermediation of banks — have proceeded on a transnational basis, forcing banks in all countries of the world to adapt.

At the beginning of the last chapter, I made the comparison of Barclays and NatWest with Citicorp and Chase. My profiles of those US banks in The Future of American Banking (1993) suggest some striking similarities between Barclays and Citicorp as one pair, pursuing entrepreneurial, first-mover strategies, and between NatWest and Chase as another, having a more risk-averse style.

Just as Lloyds had been the best performer of the Big Four since the mid-1980s, so had Midland been the worst, until the past few years when it has made a remarkable recovery. From 1988 until 1993, for example, its average ROE after taxes was 4.8 per cent, compared with Lloyds at 19.7 per cent over the same period, NatWest at 6.8 per cent and Barclays at 5.8 per cent. By contrast, from 1994 to 1997, Midland’s average ROE after taxes was up to 22.9 per cent, comparing favourably with NatWest at 12.8 per cent, Barclays at 19.8 per cent, and Lloyds at 31.2 per cent.¹

A central issue of this book relates to how well universal banking succeeded in Britain, as one nation whose commercial banks pursued a version of that strategy. In the British variant, these banks diversified into a variety of financial services, particularly investment banking and insurance, grouping them in a loosely coupled fashion into one common holding company. In contrast to the German and Swiss versions of universal banking, the British version has not included significant holdings and voting power in big, non-banking corporations.¹