London Scottish Bank plc

London Scottish House, Mount Street
M2 3LS United Kingdom
+ 44 161 834 2861
+ 44 161 834 2536
Web site:

Public Company
Incorporated: 1936 as Refuge Lending Society Ltd.
Employees: 1,278
Sales: £312.6 million ($500 million) (2004)
Stock Exchanges: London
Ticker Symbol: LSB
NAIC: 522110 Commercial Banking

London Scottish Bank plc (LSB) is one of the United Kingdom's leading providers of credit to the "sub-prime" market—that is, to consumers typically denied credit at other financial institutions. LSB's core operations revolve around its traditional base in the so-called doorstep lending sector, in which loans are made and collected in door-to-door fashion. In this segment, LSB's loans are typically small, at an average of £420 and ranging up to £1,000, and for older customers, as high as £3,000. Loans are also typically short-term, usually no more than six months, with interest rates at 20 percent APR and higher, and payments are made weekly. LSB customers, primarily working class and low-income, generally begin with small loans, which are gradually replaced with larger loans as the customer establishes a credit history. Consumer Credit remains LSB's largest division, representing more than 70 percent of annual revenues of nearly £313 million in 2004. Debt collection, principally through the company's Robinson Way subsidiary, is the company's main profit generator. The company not only supports its own operations, but also provides debt collection and related services—including meter reading—to a variety of customers. Since the early 2000s, London Scottish Bank has made an effort to diversify its lending portfolio away from a reliance on doorstep lending. The company has made a number of acquisitions, including Call-4-Cash, Sterling Direct, Pacific Homeloans, and Personal Loan Centre, boosting its direct lending business. This operation also has been extended to LSB's national network of more than 100 branches. In 2004, the Manchester-based company also launched its first retail deposit offering to the public. In another move, LSB has stepped up its efforts to win commercial lending customers, a division that adds some 15 percent to group turnover. Listed on the London Stock Exchange, LSB is led by CEO Roy Reece. Chairman of the board is Jack Livingstone, grandson of the company's founder.

Turn of the 20th Century Lender

London Scottish Bank traced its roots back to turn of the 20th century England, when Lewis Livingstone set up a small money-lending business in Wigan, Lancashire. By providing small, short-term loans to the area's large, low-income working class—which tended to be shunned by larger lenders—Livingstone's business grew quickly. By 1903, Livingstone opened an office in Manchester. That city then became the company's headquarters, as well as its major market.

Livingstone's company became a family affair in 1918 when son Harry Livingstone, just 15 years old at the time, joined his father's business. Together the pair expanded the company's base of operations. By the mid-1930s, the company operated seven branches, all within the Lancashire region. In 1936, the Livingstones incorporated the company as Refuge Lending Society Limited. Harry Livingstone's son Jack Livingstone joined the company in 1958.

Lancashire remained Refuge's focus through the 1950s, and by the beginning of the 1960s, there were 15 Refuge branches throughout the region. In 1961, however, the company, then led by Harry Livingstone, decided to expand beyond its home base for the first time. Adopting a strategy of organic expansion and acquisition, Refuge added 18 new branches by 1962, including the acquisition of Reliance Guarantee Company. The company also established new regional subsidiaries, Refuge Lending Company (Northern) Ltd. and Refuge Lending Company (Midlands) Ltd. in 1962.

Refuge's earlier expansion targeted primarily England's North and Midlands regions. In the second half of the 1960s, Refuge began extending further across the country. By the end of the decade, the company operated 38 branches, including two in London, first established in 1968.

Public Offering in 1970

Concurrent with its geographic expansion, the company began to expand its range of financial services as well. Into the 1970s, Refuge's client base topped 18,000 customers, the majority of whom were regular customers. Average loan amounts ranged from £40 to £200, and regular customers tended to arrange advances twice per year. A distinguishing feature of Refuge was its low bad debt ratio. By conducting thorough investigations of its potential clients, the company was able to maintain its defaulted loan rate at just 2 percent of total turnover.

This success led the company to extend its loan services into longer-term categories in 1966, with the creation of a new subsidiary, Sameday Re-Mortgage Company Limited. Refuge then began providing loans for up to three years, as compared with its main business's average of just six months. Through the 1970s, the company continued to shift its balance of business toward the longer term, in part by targeting council tenants, seen as better risks, with one- to three-year loans.

Refuge restructured at the beginning of 1970 in preparation for its public offering. In July 1970, the company listed its shares on the London Stock Exchange, and prepared to step up its expansion. A major milestone in the company's growth came in 1975, when it acquired debt collection agency Robinson Way. That business, like Refuge itself, conducted a great part of its debt collection services through door-to-door visits. In this way, Robinson Way proved a strong complement for Refuge's core business. It also proved to be one of the most profitable areas of the company's operations, eventually responsible for some 30 percent of group profits.

During the 1980s, the company added a small commercial debt collection operation as well, as an add-on to Robinson Way's focus on the consumer market. This diversification of the company's activities, coupled with a liberalization of the British banking sector, led Refuge to change its name in 1986, when it adopted its new moniker, London Scottish Bank (LSB).

LSB continued to seek growth opportunities through the end of the 1980s. In 1988, for example, the company acquired Manchester-based James Stewart Group. That purchase boosted LSB's consumer finance and retail credit operations. The company also continued to expand its debt collection operations, both through organic growth and through a number of smaller acquisitions. Another acquisition, of Commercial Credit Consultants in 1990, helped establish the group's commercial debt collection operations as a major part of its overall business.

Diversified Financial Group for the New Century

Despite the lean economic times of the early 1990s, especially in the United Kingdom, which only slowly pulled out of a national recession toward the latter half of the decade, LSB remained in relatively good health. This was due in large part to its focus on the low-income sector. LSB's clientele relied heavily on relief benefits, or, in the case of working clients, wages that barely climbed above the relief level—because of this, these populations tended to be much less affected by economic downturns. As a result, LSB came through the worst of the recession with more or less stable bad debt levels.

Nonetheless, LSB's core market was seen as relatively mature as the company approached the new century. In response, LSB began preparations to diversify its operations beyond its reliance on doorstep lending and, to a lesser extent, debt collection.

Acquisitions played a prominent role in LSB's new diversification strategy. In 1997, the company established a new direct lending wing, with the acquisition of Personal Loan Centre. This was followed in 1998 by the addition of another area of operation, factoring—that is, providing billing services for smaller companies—when it acquired Isis Factors, paying £6 million.

Acquisitions continued into the next decade. In 2000, the company added telephone-based direct lending specialist Call-4-Cash. By 2001, the company's direct lending activities accounted for some 15 percent of total turnover.

LSB continued looking for acquisitions in order to expand into the new century. In 2002, the company acquired Stirling Direct Finance Ltd. This purchase enabled LSB to establish a mortgage-secured lending wing. LSB returned to the acquisition trail and, in June 2003, purchased Prime Finance, a sub-prime lender and loan packager.

By 2003, LSB's customer base had topped 180,000. With the sub-prime market estimated to be as much as eight million people in the United Kingdom, the company was considered to have strong potential for future growth. In that year, the company took a new approach toward attracting customers, launching its first retail deposit account for the first time. The fund, offering rates as high as 5.85 percent, quickly attracted nearly £29 million from more than 1,700 customers.

Company Perspectives:

London Scottish Bank is a Specialist Financial Services Company. It has been Established for over a century. Over 2000 staff provide services to the Public and Private sectors, as well as the consumer, through a nationwide network of over 100 Branches and a state of the art Call Centre. Its High Power Systems are without equal.

By then, LSB also had boosted its secured loans division. In February 2003, the company announced its acquisition of Pacific Home Loans, based in Leigh, Essex. LSB paid an initial price of £3.2 million for the purchase. LSB did not neglect its core doorstep lending business, however. In August 2004, the company boosted that division through the acquisition of the debt portfolio of Morse's Ltd. The purchase, for £10 million, added Morse's more than 123,000 customers to LSB's books. The acquisition also provided LSB with Morse's 500 staff, including 200 collectors employed directly by Morse's. In addition, the purchase gave LSB the option to hire more than 300 self-employed collectors who had worked with Morse's.

Yet, LSB faced uncertainty at the beginning of 2005. The company's low stock valuation exposed it to a potential takeover and breakup—indeed, in September 2004, the company was rumored to have faced down just such a threat. More troubling, however, came the news in January 2005 that the British Competition Commission had launched an inquiry into the doorstep credit market. With some members of the sector reportedly collecting as much as 170 percent APR on loans to the United Kingdom's poorest households, observers feared a shakeup of the industry upon the inquiry's completion in 2006. LSB's reliance on doorstep lending, despite its diversified operations, left it vulnerable to any measures enacted by the Competition Commission.

Principal Subsidiaries

Pacific Homeloans; Personal Loan Centre; Robinson Way; Sterling Direct.

Principal Competitors

Provident Financial plc; Cattles plc.

Key Dates:

Lewis Livingstone opens a money-lending business in Wigan.
Livingstone opens an office in Manchester and moves headquarters there.
Son Harry Livingstone joins the business.
With seven branch offices, the company incorporates as Refuge Lending Society Ltd.
Jack Livingstone, grandson of the founder, joins the business.
The company launches expansion beyond the Lancashire region.
The company founds Sameday Re-Mortgage Company Ltd. as part of a shift in focus to longer-term loans.
The company acquires Robinson Way in diversification into debt collection.
The company changes its name to London Scottish Bank.
The James Stewart Group, in Manchester, is acquired.
Commercial Credit Consultants is acquired, boosting commercial lending operations.
Personal Loan Centre is acquired, adding direct lending operations.
The company acquires Isis Factors and enters factoring (invoicing) services.
Call-4-Cash is acquired, adding telephone-based direct lending services.
The company buys Stirling Direct Finance Ltd., adding secured lending operations.
The company acquires the doorstep loan portfolio of Morse's Ltd.

Further Reading

Brignall, Miles, "Anatomy of a Specialist Lender," Guardian, October 30, 2004, p. 13.

Eastlake, Elizabeth, "Strong Growth at London Scottish," Financial Times, June 11, 2003, p. 26.

Hall, William, "Debt Collection Arm Lifts London Scottish," Financial Times, January 20, 2005, p. 25. ——, "London Scottish in 14th Year of Growth," Financial Times, November 13, 2004, p. 4.

Jivkov, Michael, "Bid Approach Rumours Lift London Scottish Bank," Independent, September 8, 2004, p. 48.

"LONDON SCOTTISH BANK (LSB)," Investors Chronicle, January 28, 2005.

Mackintosh, James, "London Scottish Bank Expects Continued Growth," Financial Times, June 13, 2001, p. 24.

Moore, Sheryl, "London Scottish Profits Rise on Soaring Demand," Manchester Evening News, June 10, 2003.

Shah, Saeed, "London Scottish Too Costly to Bank On," Independent, January 15, 2004, p. 25.

—M.L. Cohen

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