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Authors: Ray Perman, Alistair Darling
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had owned 36 per cent of Bank of Scotland since its
acquisition of British Linen Bank, decided it wanted either to acquire the remainder of the Bank or to sell its stock. There was no appetite on The Mound for becoming a subsidiary of Barclays,
which had its own problems and was still in the grip of the founding families. Instead Risk arranged to have Standard Life, Scotland’s largest life assurance company, buy the holding, rather
than have it acquired by a possible predator. ‘It was a squalid Scottish stitch-up,’ remarked one Bank executive. Standard Life was criticised for the deal on thegrounds that such a big stake, representing over 7 per cent of its equity holdings, would unbalance its portfolio, but it held the shares for ten years and sold them for four times
what it had initially paid.
Pattullo turned conventional thinking in the Bank on its head. Whereas the previous generation of managers had seen the ending of the Gentleman’s Agreement as a threat that the English
banks would come into Scotland, he saw it as an opportunity. With an English market ten times the size of Scotland to go after, Pattullo saw that he had the best of the deal. Whereas others saw
Bank of Scotland’s tiny percentage of the UK banking market as a weakness, he regarded it as a strength. He could realistically aim to double his share, whereas any of the ‘Big
Four’ English banks, each with about a fifth or more of the market would struggle to gain any increase.
His strategy was to move into England with a series of carefully positioned branches in fast-growing English regions. Birmingham was the first, quickly followed by other major cities. He
recognised that in a new market it would be impossible to make enough profit from retail business to justify the property and manpower costs of opening a large branch network, so the new offices
were to concentrate on corporate business, lending and, crucially, taking deposits. That would mean a fewer number of bigger and more profitable deals.
He intended to tackle the English retail market by a twin-approach of getting other people to sell Bank of Scotland products, and pioneering direct sales channels which did not need bricks and
mortar. Before long the Bank was providing credit to customers of Marks & Spencer, the clothing retailer C&A, Renault cars, the Henley Group car dealership, British Rail and the motoring
organisation the AA. Banks had got over their fear of mortgages, realising that although the loans were granted for 25 years, many people moved house and redeemed their debts long before that. The
average life of a mortgage was less than a third of the nominal length. Bank of Scotland processed home loans centrally, but marketed them in this pre-internet age through newspaper ads all over
the country. It also launched a Money Market Cheque Account, aimed at people with above-average incomes or wealth – the first account in the UK to offer near-market rates on credit balances
above a minimum level. The address of the Bank’s Threadneedle Street branch in the City of London was on each cheque, but the account was run from a computer centre in the Edinburgh council
estate of Wester Hailes.
Innovation was now the Bank’s guiding principle and this was dramatically illustrated by the introduction in 1985 of HOBS – the Home & Office Banking
System, the first electronic banking system in the UK. It was initially run on Prestel, an early electronic network. For the first time customers could see their account balances and move money
between deposit and current accounts from a screen on their desks or on their home televisions. We now take this for granted with internet banking, but at the time it was revolutionary. The Bank
was freed from its dependence on a branch network largely confined to the most northerly quarter of the country and customers did not have to telephone their branches or visit them to find out what
their balance was. HOBS brought Bank of
acquisition of British Linen Bank, decided it wanted either to acquire the remainder of the Bank or to sell its stock. There was no appetite on The Mound for becoming a subsidiary of Barclays,
which had its own problems and was still in the grip of the founding families. Instead Risk arranged to have Standard Life, Scotland’s largest life assurance company, buy the holding, rather
than have it acquired by a possible predator. ‘It was a squalid Scottish stitch-up,’ remarked one Bank executive. Standard Life was criticised for the deal on thegrounds that such a big stake, representing over 7 per cent of its equity holdings, would unbalance its portfolio, but it held the shares for ten years and sold them for four times
what it had initially paid.
Pattullo turned conventional thinking in the Bank on its head. Whereas the previous generation of managers had seen the ending of the Gentleman’s Agreement as a threat that the English
banks would come into Scotland, he saw it as an opportunity. With an English market ten times the size of Scotland to go after, Pattullo saw that he had the best of the deal. Whereas others saw
Bank of Scotland’s tiny percentage of the UK banking market as a weakness, he regarded it as a strength. He could realistically aim to double his share, whereas any of the ‘Big
Four’ English banks, each with about a fifth or more of the market would struggle to gain any increase.
His strategy was to move into England with a series of carefully positioned branches in fast-growing English regions. Birmingham was the first, quickly followed by other major cities. He
recognised that in a new market it would be impossible to make enough profit from retail business to justify the property and manpower costs of opening a large branch network, so the new offices
were to concentrate on corporate business, lending and, crucially, taking deposits. That would mean a fewer number of bigger and more profitable deals.
He intended to tackle the English retail market by a twin-approach of getting other people to sell Bank of Scotland products, and pioneering direct sales channels which did not need bricks and
mortar. Before long the Bank was providing credit to customers of Marks & Spencer, the clothing retailer C&A, Renault cars, the Henley Group car dealership, British Rail and the motoring
organisation the AA. Banks had got over their fear of mortgages, realising that although the loans were granted for 25 years, many people moved house and redeemed their debts long before that. The
average life of a mortgage was less than a third of the nominal length. Bank of Scotland processed home loans centrally, but marketed them in this pre-internet age through newspaper ads all over
the country. It also launched a Money Market Cheque Account, aimed at people with above-average incomes or wealth – the first account in the UK to offer near-market rates on credit balances
above a minimum level. The address of the Bank’s Threadneedle Street branch in the City of London was on each cheque, but the account was run from a computer centre in the Edinburgh council
estate of Wester Hailes.
Innovation was now the Bank’s guiding principle and this was dramatically illustrated by the introduction in 1985 of HOBS – the Home & Office Banking
System, the first electronic banking system in the UK. It was initially run on Prestel, an early electronic network. For the first time customers could see their account balances and move money
between deposit and current accounts from a screen on their desks or on their home televisions. We now take this for granted with internet banking, but at the time it was revolutionary. The Bank
was freed from its dependence on a branch network largely confined to the most northerly quarter of the country and customers did not have to telephone their branches or visit them to find out what
their balance was. HOBS brought Bank of
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