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Banking success amid the baked beans

By Gillian Tett

Published: March 30 2009 20:42 | Last updated: March 30 2009 20:42

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Three years ago, Migros bank – the financial arm of the doughty Swiss supermarket chain – seemed stubbornly unfashionable.

The bank did not pay its top bankers bonuses. Nor did it engage in risky international investments. Instead, it focused on collecting deposits and turning those into low-risk loans, for consumers who usually also used the group for their grocery shopping.

These days, however, Migros’ banking style has become all the rage. Last year, its retail deposits surged SFr2.6bn to about SFr24bn, even as customers pulled money from better-known Swiss lenders such as UBS.

That has turned Migros into one of the fastest growing private sector banks in Switzerland, if not Europe (excluding those that are partly owned or guaranteed by the state). Not bad for a brand that sprang to life selling “basics” such as noodles and soap.

There is a bigger moral here – not just for Tesco (which is planning to expand its own in-store banks), but investors and policymakers too. During the past few years, global policymakers have scrambled to find ways to rid western banks of their rotten assets, in the hope that if these existing banks could be “cleansed” they would feel confident to lend.

Yet most of those detoxifying efforts have failed: mainstream banks are still distrusted by consumers and investors and also reluctant to lend.

Consequently, as the crisis drags on, a new idea is surfacing in financial circles: namely that it could be time to start focusing on “greenfield” banks.

For the extent of toxic assets remains so large that it will be hard to revive the polluted, legacy groups soon. Thus the real hope for banking – or so this argument goes – lies with new entities or existing, untainted, institutions that are not perceived as legacy banks.

Migros is a case in point. Its managers say that one reason they are attracting so many deposits is that customers trust their low-key homespun style more than that of international groups. No doubt consumers also like the fact that Migros – unlike most of its competitors – has not needed to tap the state for help.

Another factor helping Migros – and Tesco – is that consumers also trust retailers more than banks. After all, selling baked beans is a useful and tangible business that anyone can understand. The same cannot be said for, say, trading in collateralised debt obligations.

However, retailers are not the only beneficiaries. NIBC, the Dutch bank owned by the JC Flowers private equity group, for example, launched an online retail banking business last year – and has attracted €1.5bn in deposits, by virtue of being new. That has consequently prompted the JC Flowers group to start searching for other “greenfield” banking opportunities – alongside its strategy of buying up distressed legacy groups.

Other financiers are probably doing the same. After all, the more that existing banks are forced to reduce their assets – and the more that central banks cut rates – the better banking margins should become, at least for the survivors.

No wonder Tesco has a hungry look in its eye; if nothing else, the tale illustrates that the competition instinctive remains alive in finance – even if it is now repackaged, amid soap and beans.


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