Bank of Scotland (UK)


Now an arm of Lloyds Banking Group, Bank of Scotland enjoyed a reputation as one of the UK's most traditional and conservative financial establishments for more than 300 years. Until 1999 that is, when two unusually daring moves cast the bank in an entirely new light. The first was an ill-conceived tie-up with ultra-conservative US evangelist Pat Robertson; the second was an ambitious takeover bid for troubled rival NatWest, more than twice BOS's size. Both plans failed, leading to speculation that BOS would also become prey to a hostile bid. After fruitless talks with what was then Abbey National in late 2000, BOS opened negotiations with Halifax instead. A merger was agreed in early 2001, creating HBOS. The lack of moderation that had got the bank into trouble in 1999 surfaced again between 2005 and 2008, when reckless lending caused the effective collapse of HBOS as well.

Not to be confused with its traditional rival The Royal Bank of Scotland - which suffered similar financial woes in the late 2000s - Bank of Scotland dates back to 1695, more than a decade before England and Scotland were united in the Great Union of 1707. It was formed by an Act of Scottish Parliament, principally to encourage trade with England and Holland. As the first national bank of Scotland, it fell to BOS to issue that country's first bank notes in the year of founding. (In fact this was the first widely used paper currency anywhere in Europe - the currency itself, known as Scots, was converted to Sterling after 1707). Despite attempts by the Bank of England 150 years later to become the only issuer of 1 notes, BOS fought a fierce campaign to retain its privilege. It continues to issue its own banknotes, which carry a different design from their southern counterparts, a fact which still causes confusion to many first-time visitors to Scotland.

Under the terms of the Act of Parliament which founded it, the Bank of Scotland was allowed a monopoly in its home country until 1716. A series of smaller competitors launched over the following years, but the most serious rival was the Royal Bank of Scotland, formed in 1727 by George II under Royal Charter. Towards the end of the 18th century, the Bank of Scotland began to move beyond its Edinburgh base, opening branches around the country before then moving south of the border with its first London office in 1865. Like other leading banks, it expanded through acquisition, absorbing a number of smaller or weaker rivals including the Caledonian Bank, the Central Bank of Scotland, and the Union Bank of Scotland. 

In 1958, the bank acquired consumer credit agency NorthWest Securities in the north of England. This was subsequently renamed Capital Bank. Later, Bank of Scotland was heavily involved in the development of North Sea oil in the 1970s, and opened its first international offices in the USA and Russia. In 1971, the group acquired the British Linen Bank from Barclays, relaunched six years later as its merchant banking arm. Bank of Wales was established in 1986, and the group moved further afield in 1995 with the purchase of the Bank of Western Australia (or BankWest). BOS bought the business from the West Australian Government for A$950m, and then floated off a 49% holding.

Slow and cautious, Bank of Scotland was known for its low-risk partnerships offering steady returns, not high risk gambles. It remained one of the UK's smallest banks by branch numbers, with only around 300 branches in Scotland in 1999, and just 24 in England. As a result, it was more or less immune to the overexpansion that struck down each of its English counterparts during the 1980s and 1990s. Instead, BOS channelled its expansive urges into a series of joint ventures with commercial partners. One of its most successful partnerships was to underwrite Sainsbury's in-store banking service. The supermarket group provided marketing and the branch network, while BOS managed the money. A similar partnership followed with the Automobile Association to provide AA Financial Services, while Capital Bank established a number of leasing joint ventures with car companies including Daewoo and dealership Inchcape. 

The 1999 alliance with ultra-conservative American TV evangelist Pat Robertson was designed to be the launching pad for a similar joint venture in the US. Robertson would become a front-man for the New Foundation Bank, marketed through his US-based Christian Broadcast cable TV network which boasts an audience of more than 55m. The partners had hoped to sign up 5m members over the first three years, more than doubling the BOS customer base. However, as Robertson's inflammatory comments about other religious persuasions and races began to be reported in the UK, the bank found itself entering uncharacteristically controversial territory. The situation came to a head when Robertson foolishly described his prospective partners' homeland of Scotland as "a dark land full of homosexuals". When gay activists began defacing Scottish banknotes with the words "friends for bigots", the bank finally decided enough was enough and terminated the deal.

The Pat Robertson venture was more speculative than many would have expected from BOS; but the hostile bid for NatWest took almost everyone by surprise. Bank of Scotland launched its initial offer of 20.8bn in September 1999, emphasizing the strength of its own management team, compared to NatWest's disorganised and uninspiring senior executives. However, the bid immediately led to wide-ranging speculation that other bidders, including Royal Bank of Scotland, would emerge to launch counter-bids for NatWest. After lurking in the background for two months without formally tabling a bid, RBS initially presented a friendly offer to NatWest. This was rejected, and RBS immediately launched a hostile bid of its own.

The bid battle rumbled on for two months, with neither side seeming to gain the upper hand. As the timetable drew to a close shareholders were left to choose between three alternatives - the rival Scottish banks' bids or the preservation of NatWest's independence. The contest began to look very close indeed, but shortly before the deadline, several of NatWest's biggest shareholders came out in favour of RBS. NatWest and BOS were both forced to concede defeat. 

The failure of BOS's bid caused pundits to predict that it would itself fall prey to a hostile takeover. After several months under the shadow of such a bid, a suitor finally emerged at the end of 2000. Abbey National proposed a friendly merger which could create Britain's fourth-largest bank. BOS's initial response was to decline the approach. Abbey persevered, finally persuading Bank of Scotland to commence talks. However, those negotiations provided a spur for rival Lloyds TSB to press its own takeover bid for Abbey National. BOS's intransigence and Lloyds TSB's determination finally forced Abbey to abandon its bid in February 2001, leaving BOS single once again. But not for long. Halifax became BOS's third potential partner at the end of March. The two companies were forced to confirm that they were discussing a merger after a leaked press report. A deal was agreed in May 2001 and completed in September that year.

See HBOS and Lloyds Banking Group profiles for subsequent events.

Last full revision 30th September 2015


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