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How an isolated Scotland risks being stripped of banking services

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NATWEST announced on 29th April that it would move its group head office to England if Scotland were to leave the UK. That would cost Scotland an unstated number of high-paying financial services jobs – and also result in Scotland only taxing a small part of the bank’s profits rather than all of them.

Financial services is a critical sector of the Scottish economy. The Scottish Government’s own report in 2017 entitled “Scotland – a trading nation: a plan for growing Scotland’s exports” showed the sector accounted for 19.3 per cent of total enterprises in Scotland (34,030 enterprises) and 17.2 per cent of employment (333,460 employees). It was responsible for 27.1 per cent (£13.2bn) of Scotland’s total exports to the rest of the UK.[1]

Where Natwest has led, Lloyds will follow. In this case there won’t be any corporation tax takings: Bank of Scotland will continue to be loss-making for many years thanks to the huge book of bad loans which brought it down in 2008, and took Halifax and consequently Lloyds down with it.

The owners of Clydesdale Bank, formerly the third largest Scottish bank, got its retaliation in first: Clydesdale is already just a trading division of Virgin Money headquartered in Newcastle.

Now that Natwest has broken cover, others – beyond Lloyds and Virgin Money – can follow. There will be an exodus of the HQs for Scottish Widows, Abrdn (with or without its vowels) and any other firms that manage pensions for English, Welsh or Northern Irish savers. These savers will not hang around to see if the cash-poor SNP tries to put a shovel into their pension pots.

Then there is the question of whether these Scottish financial institutions would even continue at their current scale in Scotland.

The CEO of Natwest justified its plan on the basis of ‘balance sheet management’, whatever that euphemism really means, and she then reaffirmed Natwest’s commitment to the Scottish marketplace. That should send a shudder through Holyrood, as it is the banking equivalent of a soccer club chairman declaring full confidence in the manager.

RBS/Natwest has form in this area. After its bail-out in 2008, when it had operations in 40+ countries worldwide, largely inherited through its acquisition of the Dutch ABN-Amro, it initially worked out a system with McKinsey’s management consultants whereby the countries were evenly split between ‘Core countries’, ‘Restructure countries’, and ‘Exit countries’, the intention being that the group would eventually operate in around 25 countries and close or sell-off its operations in the rest.

Not long afterwards the dozen or so ‘Core countries’ were reduced to four, and then two, when the Netherlands and USA were discarded. That left the UK and the Republic of Ireland, where it owns Ulster Bank – the third largest bank.

RBS/Natwest reaffirmed its commitment to the Republic of Ireland regularly, for example in 2013.[2] Now Ulster Bank is being closed down.[3] Its loans and deposits are being parcelled out to other banks, and its physical branch network of 88 locations will be ‘amalgamated’ with the 79 locations of Permanent TSB: that could result in anywhere between 167 branches and none, if Permanent TSB decides to take the opportunity to ‘rationalise’ at the same time.

Two major questions should be answered by the SNP this week about the future of banking in an independent Scotland.

Firstly, what is the protection for Scotland that Natwest does not do the same to RBS after independence as it is now doing to Ulster Bank? After all, Natwest has an extremely poor track record in managing its subsidiaries in foreign countries – which is what RBS will be by then.

Secondly, what happens if Lloyds and Virgin Money follow this pathway too, a pathway already being trodden by Banco Sabadell, owner of TSB? The TSB’s branch closure programme is extensive: 72 TSB branches are closing in Scotland in 2021 with 7 branches closing in Aberdeen alone.[4]

Scotland risks becoming unbanked following secession.

This shocking prospect is all the more difficult to counter when the banking system is foreign-owned.

RBS, Bank of Scotland, Clydesdale and TSB would be owned by Natwest, Lloyds, Virgin Money and Banco Sabadell respectively. This would place an independent Scotland on a par with a Romania or a Bulgaria, whose indigenous banks are owned by the likes of Unicredit of Italy and KBC of Belgium. The countries are grouped into a regional Central & Eastern Europe banking concept, where the parent bank also owns institutions in Slovenia, Hungary, Poland, Czech Republic, Slovakia and more. No one country is regarded as Core, but Central & Eastern Europe as a region counts as Core.

An independent Scotland will not merit the status of a Core country either on its own (it is too small) or as part of a regional banking concept. Such Non-Core countries get starved of investment, ‘restructured’, ‘rationalised’, ‘downsized’, ‘exited’ – all variations of debanking.

It was not devastating to Belgium that RBS/Natwest sold off its business there to BNP-Paribas, but it would be devastating to Scotland if Natwest shut RBS down, and worse still if Lloyds, Virgin Money and Sabadell did something similar.

This critical sector will fold its tents if Scotland goes independent, causing a collapse of service provision for Scottish businesses and consumers.

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[1] https://www.gov.scot/publications/scotland-a-trading-nation/sectors/financial-and-business-services/

[2] https://www.irishtimes.com/business/financial-services/ulster-bank-to-stay-in-ireland-says-rbs-1.1580589

[3] https://www.irishtimes.com/business/financial-services/ulster-bank-confirms-phased-withdrawal-from-republic-over-coming-years-1.4489390

[4] https://www.tsb.co.uk/our-branches/

[5] http://www.lyddonconsulting.com/why-snp-want-to-keep-the-pound-january-2014/

[6] https://www.telegraph.co.uk/news/uknews/scotland/10735256/Cybernats-call-for-Barrhead-Travel-boycott-over-SNP-independence-lies-claim.html

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