Select Committee on Treasury Minutes of Evidence

Examination of witnesses (Questions 120 - 139)



  120. But you have confirmed that you are going to go on closing branches.
  (Mr Barrett) I shall go on adapting the distribution network as the customers define it.

  121. Earlier you said you would go on closing branches.
  (Mr Barrett) Yes; if that means closing branches we shall do it.


  122. Mr Dalton, you are not going to follow Mr Ellwood in his pledge not to close any branches where it risks leaving a community without a bank at all.
  (Mr Dalton) I should be happy to follow Mr Ellwood's pledge but we do not have a branch closing strategy, we are in branch opening mode.

  123. So you are not in that position.
  (Mr Dalton) No, we are not.

  124. Mr Barrett has not accepted that.
  (Mr Barrett) Different strategies are what makes a market. When I get my productivity ratio down closer to Lloyds I shall reconsider it.

Mr Plaskitt

  125. You have changed policy, you are not going to close them where it risks leaving a community without a bank at all. Does that mean you are going to be continuing to run non-viable branches?
  (Mr Ellwood) Some of those branches, where it is the last branch in town, will indeed be incurring a small loss which we are happy to live with.

  126. You are prepared to subsidise that in effect from other parts of your business.
  (Mr Ellwood) It is a pretty small loss in a number of those cases but the answer to your question is yes. We think the branch network is absolutely vital to the prosperity of the group and we have 2,300 branches, several hundred more than Barclays, 600 more than HSBC, 600 more than the old NatWest. Whilst we have closed branches over the last few years, if you compare that figure of 2,300 branches to the number the old Lloyds customers had, about 1,800 and the old TSB customers had 1,100, so they now have a lot more branches than they had. The focus of our consolidation will really be where two branches are very, very close together, which we are able to do because of the merger, usually within half a mile, often within the same high street. That is where the focus of our attention will be.

  127. To be clear: you are not going to close them where it will result in the withdrawal of banking facilities.
  (Mr Ellwood) Where we are the last branch in town.

  128. Where you are the last branch. Mr Dalton, HSBC, although you have reduced the branches by 20 per cent since 1988 you have now come to a stop and you are opening branches. Correct?
  (Mr Dalton) Correct.

  129. This leaves Barclays out on a limb on the policy of branch closure.
  (Mr Barrett) Our policy of branch closures in remote locations where there is insufficient customer demand to justify their continuance, yes, I shall deal with those issues as they occur.

Sir Michael Spicer

  130. It was said earlier that rising interest rates were bad for banking business. Because of fiscal laxity in the budget and therefore rising interest rates which lie ahead are there storm clouds ahead for the banking sector and will that result in further closures of branches?
  (Mr Barrett) No, I do not think that would lead to closures. There are small storm clouds; we saw it in the correction in the stock market which was a little frightening and we shall see where that goes. It seems to have recovered and stabilised. The spectre of growing inflation is a worry. What I am more confident about than I was in the past is that central banks are much better at managing a monetary policy than they were in the previous decades and that is why we have had such a prolonged cycle. I think they will address it before it becomes a problem. We are already seeing just—I do not want to overdo this point—a little bit of strain in terms of the ratio of household debt to household income in the country which is climbing. You are seeing a little bit higher delinquency and default rates in certain aspects of the economy. It is not a red light, but it is an area where we are paying more attention and not as relaxed as we were a year or two ago.

  131. Will these potential storm clouds affect the policy which you have just enunciated, Mr Ellwood and Mr Dalton?
  (Mr Ellwood) If we do see rising interest rates, we do not think it will affect the number of branches at all. The challenge for the banks is dealing with greater competition, particularly new competitors coming in and we do that by getting closer to our customers, better understanding and meeting their needs. That is where the real challenge is.
  (Mr Dalton) The kind of interest rates to which I was referring which caused us a lot of problems because they caused our customers a lot of problems are substantially in excess of the rates which we see now.

  132. You are talking presumably about rising interest rates.
  (Mr Dalton) I am talking about high interest rates. I am thinking about the days when the rates were 10, 12 even 15 or more per cent. Those create great difficulties for bank customers.

Mr Cousins

  133. Do you actually know how much it costs to do a teller machine transaction?
  (Mr Ellwood) Yes, we believe we do.

  134. You believe you do.
  (Mr Ellwood) Yes, we do know how much it costs and that is the figure which I quoted earlier. That is why we are able to look at cost and to some extent that will mirror the price we are charging.


  135. That is your 38p.
  (Mr Ellwood) Yes.

Mr Cousins

  136. Is that full cost loaded?
  (Mr Ellwood) Absolutely.
  (Mr Dalton) We have similar numbers but costing is an inexact science. It depends on how much of the cost of the salary of people who work in head office is allocated to that transaction. We do have a cost but because of the imprecise nature of costing it is imprecise at best.
  (Mr Barrett) It would be in the range you have discussed. You get into interminable arguments about standard costs, variable costs, fixed costs and allocation of overheads and all of the good stuff. What it generally is reasonable to assume is that the cost ranges in between 30p and 40p per transaction. If I were an outside supplier looking at that as a business alone that is what I would budget as what it is probably going to cost me to stay in that game and therefore what my profits might be off it. It would be in that range.

  137. Do you actually know how much branches make? Do you have profitability accounts for each branch?
  (Mr Dalton) Yes, we do.

  138. Full cost loaded.
  (Mr Dalton) Yes, we do.
  (Mr Barrett) The only caveat I would put on that answer would be yes, we have deadly data which can tell us what both the usage and the profitability of each branch is. They used to be independent profit centres but they are now sales and service outlets. We do not run P&L by branch any more at Barclays but we have a matrix which can tell us exactly what the profit contribution is based on the volumes of business done at that branch.
  (Mr Ellwood) We do not run our branch network on an independent profit basis, we run it on levels of customer service and sales. We can identify exactly the level of profit as a result of allocating central costs.

  139. If your knowledge of costs is not structured to produce unit costs in that way how do you deal with cross-subsidy? How do you even know about cross-subsidy?
  (Mr Ellwood) The focus of the branch manager is really not to worry too much about the central information technology costs for instance. His principal role is to get closer to the customer, improve the service and ensure that he can identify the relevant sales to bring about. We actually measure him on those two rather than a finite cost figure which is only arrived at by allocating costs from the centre. It is more relevant for that local branch manager to be measured on things which he can control.
  (Mr Dalton) We do the same thing. We do not charge branch managers with responsibility to manage costs over which they have no control, for example computer costs, premises costs in some cases. We measure our branch managers as well on customer service and things like that.
  (Mr Barrett) The same.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2000
Prepared 18 May 2000