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TSB Group plc is the holding company for the TSB--Trustee Savings Bank--and has a history of banking service stretching back to the early nineteenth century. Until the 1980s, the history of what is called the TSB is really the history of individual TSBs: small, independent trustee savings banks formed by members of a community to serve that community. TSBs then evolved from a confederation of separate banks to a corporate whole, a process culminating in 1986, when TSB was sold to the public and became a recognized corporate structure like any other bank. Plunging almost immediately into a period of difficulty following its flotation, the bank subsequently found its fortunes reviving; in 1994 TSB, as the sixth largest bank in the United Kingdom, served some 7.5 million customers and was a profitable and popular member of Britain's banking community.
The first trustee savings bank was established in 1810 in Ruthwell, Scotland, by the Rev. Dr. Henry Duncan. The purpose of the institution was to provide incentive and encouragement to financial responsibility among those of smaller income, who did not patronize the big, established joint stock banks. The idea proved immensely popular, and more TSBs sprouted quickly, most operated as a local public service run by trustees who were often area businessmen, clergy, or landowners. Such were the banks' popularity and proliferation that by 1817 Parliament began enacting a series of laws designed to provide a regulatory framework. The legislation established that no trustee could receive financial benefit from his position and the banks' deposits were to be invested with the government body, the Commissioner for the Reduction of the National Debt.
By 1860 there were as many as 600 separate trustee savings banks, spread throughout Britain but with a high concentration in Scotland and northern England. During World War I they became associated with National Savings, a government-backed savings scheme. The number of TSBs began to fall steadily, as individual institutions amalgamated, shifted operations to the Post Office Savings Bank, or simply closed. At the time of World War II there were only about 100 trustee savings banks, and their number continued to dwindle. At the same time, however, the TSB movement as a whole became stronger, as individual operations continued a trend of mergers: in 1945 the banks served more customers than any other bank in the United Kingdom.
During the 1960s it became apparent to the various TSBs that they must broaden their portfolio of customer service if they were to remain competitive in an increasingly complex and sophisticated financial world. Traditionally, the banks had offered only savings accounts and special investment accounts; in 1965 they began to provide checking accounts and in 1968 unit trusts. The banks were still in a disadvantageous position vis-a-vis other financial institutions, however, as they were prevented by statute from lending to their customers, restricted in allowable investments of customers' deposits, and regulated in the returns they could pay to their depositors.
Enter the Page Committee in 1971, formed by the chancellor of the exchequer to assess the future direction of National Savings and the role of the TSBs. Published in 1973, the committee's report recommended sweeping changes to the way TSBs were allowed to operate. The results were the Trustee Savings Acts of 1976 and 1978, which permitted the banks freer rein to offer their customers the full range of financial services and products. The banks eagerly put their new powers into practice, developing a thriving business in credit services: personal loans, overdrafts, home improvement loans, mortgages, bridging facilities, and Trustcard, a Visa credit card.
Simultaneously, the TSBs were inexorably moving from a loose alliance of separate organizations to a more unified entity. In the early 1970s the banks pooled their computer facilities, in retrospect a significant sign of eventual centralization. In the mid-1970s the TSBs restructured operations, trimming their numbers from 72 to 20. (By 1983 these had been further reduced to a core of four: TSB England and Wales, TSB Scotland, TSB Northern Ireland, and TSB Channel Islands.) Meanwhile, the Trustee Savings Bank Central Board was formed to coordinate and regulate the banks' activities.
Although now substantially enabled to operate in the competitive financial market, the TSBs were still on unequal footing with recognized banks, subject as they were to a different supervisory framework. The banks' plans to change their status through flotation were threatened by an odd circumstance arising from their unusual evolutionary history: it was unclear who could be said to actually own the TSBs. The government agreed to the flotation, enacting legislation in 1985 to put the banks' standing in line with that of other financial institutions, and the assets and obligations of the banks were vested in new TSB banking companies. But some customers in Scotland, claiming that the banks' assets were owned by depositors, took the matter to court to prevent flotation. Their case was rejected, however, as a 1986 House of Lords decision permitted the flotation to proceed.
A massive marketing campaign was thereafter launched to attract shareholders. Mindful of the objections of some customers to the proposed sell-off, the new company set aside priority shares for customers, aiming for half of the new shareholders to be current clients. Individuals rather than institutions were sought, and the once-disputed ownership of TSB passed into the hands of some 3.1 million shareholders.
Aside from the wish to regularize the bank's status, there were other reasons the flotation was desirable: to raise capital for growth and to unify what had hitherto been allied but basically separate entities into a coherent, centrally driven corporate organization. This was achieved with the 1986 flotation and the loose confederation of TSBs completed the process of becoming the corporate whole, TSB Group plc.
Thus poised to make its entry into the financial world proper, with the announced intention of becoming a producer of a wide array of financial services to most financial markets, TSB faltered almost immediately and landed itself in serious trouble. Part of this was due simply to unfortunate timing: all of Britain's banks were hit hard by the recession in the late 1980s and TSB suffered along with the rest. Another factor was TSB's own reaction to its flotation success. "TSB has been a rather dozy institution for 150 years," explained an unnamed analyst quoted in the Independent on Sunday. "It suddenly got an extra £1.5 billion of capital and went mad."
In its marketing blitz prior to flotation, TSB had proudly hailed itself as "the fastest moving bank in Britain"; much of its subsequent trouble arose from moving rather too fast. Eager--in retrospect perhaps too eager&mdashø expand, TSB used a substantial portion of its flotation proceeds to finance acquisitions which quickly proved unwise: Target Group, in the business of life insurance, unit trusts, and pensions, and Hill Samuel, a provider of financial services primarily involved with merchant banking. Nursing great plans for the latter acquisition, TSB set out to transform the merchant bank into a corporate bank; "in hindsight," as the company itself later remarked, "this was exactly the wrong time to make such a move. With an increased capital base Hill Samuel Bank increased its corporate lending to a sector about to experience the worst recession in living memory."
"The bank that likes to say yes," as TSB's slogan ran at the time, was soon proved to have said it too often. Plagued by a mountain of bad debts, watching helplessly as several of its new diversified business ventures failed, and hampered still by its legacy of a haphazard and inefficient corporate structure, TSB hit bottom in 1991 with a loss of £47 million.
Clearly a change in strategy--and in chief executives--was in order. TSB launched a substantial reorganization of its operations, shedding, in the process, hundreds of branches and thousands of jobs. From 1991 to 1993 some 18 businesses--most not central to TSB's primary functions--were disposed of, including TSB Northern Ireland, Swan National, and Noble Lowndes. Others, such as Mortgage Express and the life insurance and pensions aspects of Hill Samuel, were retained but closed to new business. Indeed, that subsidiary pulled in its grandiose horns and concentrated solely on its former specialty of merchant banking and on investment management. In short, TSB's ambitions of the late 1980s, when the company sought to become a diversified supplier of financial services, narrowed in the early to mid-1990s to a determination to focus on its core activities of U.K. retail banking and insurance.
TSB's new strategies are working. The results of the company's efforts are perhaps best expressed numerically: from 1991's loss of £47 million, TSB moved to a modest profit of £5 million in 1992 and soared upwards to a profit of £301 million the following year. By 1994 this had risen to £504 million. The decline of bad debt played a crucial role in this turnaround, as did improved performance brought about by the bank's reforms.
"Back from a dalliance with every mistake in the Eighties' book," according to the Independent, "the one-time boring old savings bank that tried to play with the big boys is beginning to find a role." Arguably the most important aspect of that role is TSB's dominance in the newish field of "bankassurance." The 1992 merger of TSB Retail Bank with its insurance business, TSB Trust Co., created the U.K.'s first real bankassurance organization. TSB has been very successful in selling insurance products and services to its own retail banking customers. Here it is helped by the socioeconomic profile of its customers, who tend to be at the lower levels and thus, statistically, less likely to have already made insurance arrangements.
As of the mid-1990s, TSB's record here was very good. The bank's growth in the mortgage market is well outpacing that of the industry as a whole. Sales of life insurance, pension products, and unit trusts are also healthy. The bank's scheme of luring customers with high deposit rates (thus sacrificing some banking income) in order to sell them insurance products has proved very profitable. Further, TSB attracts a significant percentage of young people opening their first bank account--surely a good omen for the future.
In 1994 the bank introduced TSB PhoneBank, a 24-hour telephone banking service. Begun in Wales, the new service looked a promising area for growth, prompting TSB to plan expansion: a big center for TSB PhoneBank was slated to open in Glasgow in the summer of 1995.
Hill Samuel is still regarded with some suspicion. Martin Hughes, banking analyst at Credit Lyonnais Laing, expressed the opinion of many when he commented: "In the 1980s, Hill Samuel wasn't a very good merchant bank. It has stayed a not very good merchant bank." TSB itself hinted strongly in 1993 that it was looking for a buyer for the subsidiary, but subsequently decided to retain it. Recently, however, the company's performance has improved somewhat and it has even scored a few coups, having won the contracts to advise the government on the National Lottery and the Channel Tunnel Rail Link.
While acknowledging the undoubted success of TSB's decision to scale down its ambitions and focus on its strengths of retail banking and insurance, financial analysts question where the bank will go from here. Its growth in bankassurance is impressive, but how long can it last? Most commentators believe that the next step to expansion is likely to be through acquisition. Indeed, the bank has publically expressed interest in acquiring a building society, probably one based in the south to counteract TSB's northern bias, but as of early 1995 the issue remained speculative. One thing is certain: the bank will tread very carefully in making any such decision, for, as the Daily Telegraph commented, the prospect of TSB making a new purchase is "an idea to send shivers down shareholders' spines after Hill Samuel and Target."
Once derided as a "banking basket case" (by the Evening Standard) and described (by the Herald) as "a disaster prone institution," TSB is now viewed as a "sensibly and tightly run bank" (the Herald again). The earliest TSBs arose to meet the needs of the communities they served. For years they prospered by continuing to answer those demands. Having made some unfortunate decisions at an unpropitious time, TSB found itself floundering in the late 1980s and early 1990s. Pulling back from expansion in a wider financial market, TSB is in a sense returning to its roots, as it focuses once more on the tradition of service to individuals, clearly its strong point: the bank attracted a record 300,000 new customers in 1994. For the future, a judgment of cautious optimism seems to be the consensus, well expressed by the Daily Telegraph: "TSB's renaissance ... has been little short of staggering, but the real challenge is to take the group forward from here."
Principal Subsidiaries: TSB Bank plc; TSB Bank Channel Islands Limited; TSB Bank Scotland plc; TSB Life Limited; TSB Pensions Limited; TSB General Insurance Limited; TSB Unit Trusts Limited; Hill Samuel Bank Limited; Hill Samuel Bank Limited; Hill Samuel Asset Management Group Limited; Investment advisers Inc. (U.S.); Atlanta Capital Management Company (U.S.); Hill Samuel Investment Services Group Limited; Mortgage Express Holdings Limited; TSB Property Services Limited; United Dominions Trust Limited.
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