Lloyds has to buy its way into financial services

By Selwyn Parker

Between the lines


Lloyds TSB's sterling 7 billion acquisition of Scottish Widows provides further proof that banks cannot sell life insurance. Not very well, anyway.

After years of trying, Britain's biggest retail bank has recognised that the only way it could ever become a true financial services company - "bancassurer" is the new word - was by buying customers.

The acquisition of Scottish Widows, Britain's fifth-biggest life insurance company, delivers 900,000 customers to Lloyds TSB, customers it would have taken decades to win on its own.

As Lloyds TSB's chief executive, Peter Ellwood, rather ruefully pointed out: "Only 4 per cent of customers buy life insurance products off us. We want that to increase."

With Scottish Widows, it obviously has already. Lloyds TSB becomes the second-largest life insurance company after Prudential, which has sterling 150 billion under management to the newly merged company's sterling 80 billion.

But the lesson for bankers is that customers see them and life insurers differently. They trust one with their money and the other with their protection. And it takes decades to convince customers otherwise.

Over the years, Scottish Widows has spent a fortune branding itself as a life insurance company, featuring a beautiful woman in mourning in its centrepiece advertising. The Edinburgh company has also been around a long time as a life insurer, since 1815 in fact, when it was established to provide for defendants of Scots soldiers killed in the Napoleonic wars.

The high price paid by Lloyds TSB very much reflects the enormous intangible value produced by so many years of existence and, presumably, trust among customers. In the matter of investment, people have long memories.

That is one considerable reason why Lloyds TSB will not bury the brand under its own name, as so often happens in takeovers. Instead, Scottish Widows will have an enlarged role by becoming an insurance and investment arm of Lloyds TSB with responsibility for pensions, unit trusts and long-term savings products.

Indeed, the retail bank plans to bury its own existing insurance companies - Black Horse Life and Abbey Life - under the Scottish Widows name. There is nothing wrong with Abbey Life's pedigree - it is 40 years old. It is just that Scottish Widows' lineage is so much longer it ought to be in De Bretts.

Shrewdly, Lloyds TSB's Ellwood has also taken care to preserve the value of the investment by not offending the "Widows" clientele north of the border. The Scottish company will continue to be run from Edinburgh under its present chief executive, Mike Ross.

Lloyds TSB's sensitivity in the Scottish Widows acquisition contrasts with the behaviour of National Bank, its subsidiary in New Zealand, in its takeover of Countrywide.

In that affair, National has all but buried the Countrywide brand under its own corporate banner.