14 MARCH 1998, Page 28

Gross margins

RETAIL BANKING is the business that everyone wants to be in. Lloyds, which has concentrated on it, can earn 40 per cent on its shareholders' funds and has become the world's most highly valued bank. Now the Birmingham Midshires Building Society, of all unlikely trophies, finds itself up for auc- tion — that's £780 million from the Halifax, thank you, sir, and do I hear a billion? Peo- ple are falling over themselves to borrow money, this is the stage of the game when the bad debts look good, and the banks' margins are as fat as butter. Barclays, for example, pays 0.3 per cent on credit bal- ances and charges 19 per cent on over- drafts, or 30 per cent to those who go over their limits. Building societies like the Brum operate on thinner margins, which is one reason why the banks would like to buy them out. I cannot believe that these fat years will last for ever. Now that the money-lending business is open to all, somebody is going to compete on price. Some bank with low costs and good systems will settle down to a war of attrition and drive the weaker lenders to the wall. Not having branches might actually help. While it lasts, the winners in this war will be the cus- tomers. It is, so they might say, their turn.