1he who|esa|e-reta|| f|nance |nterface: |dent|fy|ng

||nkages, opportun|t|es and threats for the Uk

f|nanc|a| sector

A report for the I|nanc|a| Serv|ces kesearch Iorum
Iebruary 2010



ur Sarah Pall
rofessor !onaLhan v 8eaversLock
ur 1homas WalnwrlghL

School of Ceography, unlverslLy of noLLlngham
unlverslLy ark
noLLlngham nC7 28u

1el: +44 (0)113 846 8404
lax: +44 (0)113 931 3249
Sarah.hall[noLLlngham.ac.uk

Contents age
!"#$%&'%$()*+#% % % % % % % % % % 1%
!"#$%&'%'",-.+#% % % % % % % % % % 2
!"#$%&'%/",0+$$+#%% % % % % % % % % 3
1-$2&.#% % % % % % % % % % 4%

1. Lxecut|ve Summary 3

2. Introduct|on 8

3. Conceptua||s|ng the who|esa|e-reta|| f|nance |nterface |n the Uk 11

4. kesearch methodo|ogy 17

S. kesearch I|nd|ngs 1: Spec|fy|ng the nature of the who|esa|e-reta|| f|nanc|a|
serv|ces |nterface |n the Uk 21

6. kesearch I|nd|ngs 2: Imp||cat|ons for the who|esa|e-reta|| |nterface |n the Uk
|n the wake of the g|oba| f|nanc|a| cr|s|s 39

7. Summary of f|nd|ngs 46

8. 8|b||ography 48



1
L|st of 1ab|es age
1able 3.1 Sale of uk flnanclal flrms, 1989-2000 13
1able 3.1 lrequency of offerlng dlfferenL Lypes of flnanclal servlces Lo reLall
banks by lnvesLmenL banks ln London 29
1able 6.1 CompeLlLlveness of leadlng lnLernaLlonal flnanclal cenLres based
on Lhe Z/?en Clobal llnanclal CenLre lndex (ClCl) 2007-2009 43



2
L|st of I|gures age
llgure 3.1 1he geographlcal orlglns of lnvesLmenL 8anks servlclng reLall flnance and 22
operaLlng wlLhln Lhe uk
llgure 3.2 1he geographlcal orlglns of AsseL Managers operaLlng wlLhln Lhe uk 23
llgure 3.3 aLhways Lhrough reLall and wholesale banklng 27
llgure 3.4 8elaLlve dlsLrlbuLlon of uS lnvesLmenL bank servlces Lo reLall flnance ln London 30
llgure 3.3 8M8S sLrucLurlng and dlsLrlbuLlon 31
llgure 3.6 1he value of 8M8S lssuance from P8CS's permanenL fundlng
programme, by currency 32
llgure 3.7 AsseL classes offered Lo reLall lnvesLors by uk asseL managers 33
llgure 3.8 neLworks of reLall consumer asseL managemenL 36
llgure 3.9 neLworks of mulLl-manager asseL managemenL 37
llgure 6.1 MulLl-channel reLall lnvesLor-saver rouLes 43








3
L|st of V|gnettes age
vlgneLLe 1: ualwa, !apanese wholesale-reLall bank 23
vlgneLLe 2: Merrlll Lynch, uS wholesale-reLall bank 23
vlgneLLe 3: 8arclays CaplLal, uk wholesale-reLall bank 24
vlgneLLe 4: ueuLsche 8ank, a Luropean wholesale-reLall banker 24
vlgneLLe 3: Legal & Ceneral 34
vlgneLLe 6: lamlly lnvesLmenL ManagemenL, speclallsL fund managemenL 33
vlgneLLe 7: Close 8roLhers 37
vlgneLLe 8: uk AsseL ManagemenL: Avlva, naLwesL, 88S and Lhe mulLl-managers 38
vlgneLLe 9: P8CS: ln-house securlLlsaLlon 41




4
Authors
Dr Sarah na|| ls a LecLurer ln Lconomlc Ceography aL Lhe School of Ceography, Lhe unlverslLy of
noLLlngham. She holds degrees from Lhe unlverslLles of Cambrldge and 8rlsLol and has prevlously
worked aL Loughborough unlverslLy. Per research focuses on lssues surroundlng Lhe
compeLlLlveness of London's lnLernaLlonal flnanclal dlsLrlcL. She has parLlcular lnLeresLs ln: Lhe
lnvesLmenL banklng secLor, Lhe relaLlonshlp beLween buslness educaLlon and flnanclal servlces
pracLlce, and Lhe developmenL of flnanclal experLlse. She has publlshed ln a number of lnLernaLlonal
[ournals and her research has been supporLed by awards from Lhe Lconomlc and Soclal 8esearch
Councll, 1he nuffleld loundaLlon and 1he 8rlLlsh Academy ln addlLlon Lo Lhe llnanclal Servlces
8esearch lorum. Sarah's laLesL mosL relevanL publlcaLlon Lo Lhls sLudy lncludes: Pall, S. (2007)
'8elaLlonal markeLplaces and Lhe rlse of bouLlques ln London's corporaLe flnance lndusLry'
30/".&04+0$%(05%6*(00"0,%17%39: 1838-1843.

rofessor Ionathan V. 8eaverstock ls rofessor of Lconomlc Ceography aL Lhe School of Ceography,
Lhe unlverslLy of noLLlngham. Pe holds degrees from Lhe unlverslLles of Wales and 8rlsLol, and prlor
Lo hls appolnLmenL aL noLLlngham, he was rofessor and Pead of Lhe School of Ceography aL
Loughborough unlverslLy. !on has publlshed wldely on: globallzaLlon and lnLernaLlonal flnanclal
cenLres, Lhe lnLernaLlonallzaLlon of professlonal servlces, and, expaLrlaLlon and buslness Lravel. Pe
has recelved numerous exLernal research granLs from bodles llke Lhe Lconomlc and Soclal 8esearch
Councll, 1he Leverhulme 1rusL and 1he 8rlLlsh Academy, and has underLaken exLernal work for Lhe
CorporaLlon of London and Lhe Abu uhabl Councll for Lconomlc uevelopmenL. Pls mosL relevanL
publlcaLlon Lo Lhls sLudy lncludes: Cook, C., undlL, C., 8eaversLock, !., +$8%(*8 (2007) '1he 8ole of
LocaLlon ln knowledge CreaLlon and ulffuslon: Lvldence of CenLrlpeLal and CenLrlfugal lorces ln Lhe
ClLy of London llnanclal Servlces AgglomeraLlon' 30/".&04+0$%(05%9*(00"0,%1 39: 1323-1343.

Dr 1homas Wa|nwr|ght ls a 8esearcher ln Lhe Small 8uslness 8esearch CenLre aL klngsLon unlverslLy.
1om compleLed hls docLoral Lhesls ln 2009 aL Lhe unlverslLy of noLLlngham, whlch examlned
conLemporary uk reLall banklng and Lhe credlL crunch. ln parLlcular, hls research explored Lhe uk
morLgage markeL, Lhe developmenL of credlL scorlng and Lhe lmplemenLaLlon of 8M8S
securlLlsaLlon. Pls research lnLeresLs focus on Lhe lncreased lnLegraLlon of reLall banklng wlLhln
lnLernaLlonal flnance, and Lhe soclal and regulaLory aspecLs of banklng wlLhln Lhe uk. Pls laLesL
relevanL publlcaLlon ls: WalnwrlghL, 1. (2009) 'Laylng Lhe foundaLlons for a crlsls: Mapplng Lhe
hlsLorlc-geographlcal consLrucLlon of resldenLlal morLgage backed securlLlzaLlon ln Lhe uk,'
:0$+.0($"&0(*%;&-.0(*%&'%<.)(0%(05%=+,"&0(*%=+#+(.>2 33: 372-388.



3
1. Lxecut|ve Summary
1.1 1he research context
1he lnLerface beLween wholesale and reLall flnance ln Lhe uk, ln common wlLh many oLher
advanced caplLallsL socleLles has changed dramaLlcally ln recenL years. rlor Lo Lhe global
flnanclal crlsls, wldely daLed back Lo summer 2007, reLall banks lncreaslngly came Lo rely on
fundlng from caplLal markeLs, parLlcularly Lhrough sLrucLured flnance.

Powever, recenL evenLs lncludlng Lhe collapse of Lhe uS sub-prlme morLgage markeL, Lhe
marked decllne ln lnLer-bank lendlng and Lhe credlL crunch have hlghllghLed Lhe rlsks and
LhreaLs assoclaLed wlLh Lhls buslness model for boLh wholesale and reLall flnanclal flrms.

1he experlences of dlfferenL reLall flnanclal flrms durlng Lhe crlsls has been varled wlLh
'demuLuallsed banks' belng parLlcularly hard hlL - a reflecLlon of Lhelr dependence on Lhe
llquldlLy of Lhe lnLernaLlonal caplLal markeLs whlch Lhey used Lo fund and develop Lhelr
buslnesses followlng demuLuallsaLlon.

1he relaLlonshlp beLween wholesale and reLall flnance ls cruclal ln undersLandlng such
developmenLs and yeL Lhere ls a dearLh of daLa LhaL expllclLly focuses on Lhe naLure of Lhe
relaLlonshlp beLween Lhe Lwo. 1he research reporLed here responds Lo Lhls overslghL by
explorlng Lhe relaLlonshlp beLween asseL managemenL, lnvesLmenL banklng and reLall
banklng ln Lhe uk.
1.2 1he research conducted
A desk-based revlew was conducLed Lo produce a daLabase of 163 wholesale flrms (47
lnvesLmenL banks and 116 asseL managers) LhaL provlde flnanclal servlces Lo reLall banks ln
Lhe uk and 12 reLall banks. 20 wholesale flrms (13 lnvesLmenL banks and 3 asseL managers)
were sub[ecLed Lo deLalled case sLudy analysls.

1he wholesale-reLall lnLerface ln Lhe uk ls lnLernaLlonal wlLh a conslderable number of
lnvesLmenL banks operaLlng ln London belng headquarLered ln Lhe uS (3.9), Lurope
(23.3), !apan (10.6), Canada (4.3) ln addlLlon Lo Lhe uk. AsseL managemenL ls less
lnLernaLlonal wlLh 63 of asseL managers operaLlng ln Lhe uk belng headquarLered ln Lhe uk




6
1hree Lypes of flnanclal servlces form Lhe basls of Lhe relaLlonshlp beLween lnvesLmenL
banks and reLall banks ln Lhe uk: debL caplLal servlces, equlLy ralslng and managemenL
servlces, and rlsk and llquldlLy managemenL servlces. 1he mosL lmporLanL servlces were
securlLlsaLlon and mergers and acqulslLlons advlce. 13 of lnvesLmenL banks operaLlng ln
London offered mergers and acqulslLlons advlce and 10 had experlence of acLlng as lead
arranger ln a securlLlsaLlon deal.

1he lmporLance of securlLlsaLlon ls noLable because Lhls markeL reduced ln slze by 79
beLween 2007 and 2008.
1.3 1he research |mp||cat|ons
lL ls lmporLanL Lo Lake a long-Lerm perspecLlve when conslderlng Lhe lmpllcaLlons for Lhe
wholesale-reLall lnLerface of Lhe decllne ln securlLlsaLlon. Lxperlence from prevlous flnanclal
crlses polnLs Lo Lhe conslderable ablllLy of London's wholesale markeLs Lo remaln
compeLlLlve Lhrough produclng lnnovaLlve new producLs and buslness models. lnvesLmenL
banks have also conLlnued Lo offer mergers and acqulslLlons, and equlLy based advlce Lo
reLall banks LhroughouL Lhe crlsls.

1he relaLlonshlp beLween reLall banks and asseL managemenL has been slgnlflcanLly shaped
by Lhe uk CovernmenL's reversal of Lhe 'polarlsaLlon' rule ln 2004. 1hls has led Lo Lhe
developmenL of Lwo maln buslness models ln asseL managemenL ln Lhe uk: fund
supermarkeLs, and mulLlmanager funds. 1hese buslness models allow uk reLall banks Lo
offer Lhelr cusLomers a more dlverslfled global coverage of lnvesLmenL opporLunlLles.

1he role of consumers ls vlLal ln undersLandlng Lhe fuLure developmenL of Lhe relaLlonshlp
beLween asseL managemenL and reLall banks ln Lhe uk. 1he CovernmenL has soughL Lo
Lransform lndlvlduals from passlve savers Lo 'acLlve lnvesLors' (Langley, 2006) Lhrough
producLs such as lSAs and Chlld 1rusL lunds. 1he changlng rlsk appeLlLes and ways of
accesslng lnformaLlon (e.g. Lhrough comparlson webslLes) wlll be lmporLanL ln shaplng Lhe
response of asseL managemenL Lo Lhe global flnanclal crlsls.

lnlLlal fears concernlng Lhe adverse lmpacLs of Lhe global flnanclal crlsls on London's poslLlon
as Lhe pre-emlnenL lnLernaLlonal flnanclal cenLre are currenLly provlng unfounded as London
has acLually enhanced lLs domlnance over oLher flnanclal cenLres on a number of measures
(lncludlng skllled labour markeL recrulLmenL, lnfrasLrucLure lncludlng offlce space and



7
LransporL). 1hls offers conslderable opporLunlLles Lo uk reLall flnanclal servlces flrms ln
Lerms of accesslng caplLal.

Powever, lL ls lmporLanL Lo noLe LhaL ongolng lnLernaLlonal pollLlcal dlscusslons concernlng
Lhe lmplemenLaLlon of new buslness models ln wholesale flnance (e.g. narrow banklng ln
whlch reLall banklng operaLlons are separaLed from speculaLlve acLlvlLles of lnvesLmenL
banks such as proprleLary Lradlng) have Lhe posslblllLy Lo elLher sLrengLhen London's relaLlve
domlnance over new ?ork (parLlcularly lf regulaLory changes are more sLrlngenL ln Lhe uS
Lhan Lhe uk) or erode London's poslLlon as a leadlng flnanclal cenLre lf banks declde Lo
relocaLe Lo emerglng flnanclal cenLres LhaL are percelved Lo be more llghLly regulaLed (e.g. ln
Lhe Mlddle LasL).

1he reducLlon ln Lhe llquldlLy of securlLlsaLlon markeLs durlng Lhe global flnanclal crlsls,
parLlcularly resldenLlal morLgage backed securlLles, caused a slgnlflcanL reLrenchmenL ln Lhe
uk morLgage markeL, hlLLlng demuLuallsed bulldlngs socleLles parLlcularly hard as Lhey had
relled on securlLlsaLlon Lo access exLernal fundlng Lo make loans. WhllsL mergers and
CovernmenL lnLervenLlons have provlded addlLlonal caplLal Lo address Lhe decllne ln
securlLlsaLlon (as seen ln recenL lncreases ln Lhe number of morLgage producLs avallable and
an assoclaLed moderaLe relaxaLlon ln lendlng requlremenLs) confldence and llquldlLy ln reLall
markeLs remalns fraglle. Care musL Lherefore be Laken Lo ensure fuLure regulaLory and
wlder pollLlcal changes do noL adversely hamper Lhe slow and LenLaLlve recovery ln
morLgage lendlng.

1he reducLlon ln Lhe llquldlLy of securlLlsaLlon markeLs lmpacLs upon Lhe proflL marglns
assoclaLed wlLh morLgage lendlng. 1hls has lmporLanL lmpllcaLlon ln Lerms of flnanclal
lncluslon and excluslon as reLall flnanclal flrms respond by lncreaslngly focuslng on
poLenLlally more proflLable and 'low rlsk' cusLomers Lhrough, for example, changlng loan Lo
value raLlos.



8
2. Introduct|on
lollowlng aL leasL 13 years of seemlngly llmlLless growLh, Lhe sub-prlme morLgage crlsls LhaL sLarLed
ln Lhe uS and Lhe assoclaLed global credlL crunch LhaL ls wldely daLed back Lo Lhe summer of 2007
sLalled Lhe expanslon of flnanclal servlces, Lrlggerlng recesslon ln Lhe flnanclal servlces secLor and Lhe
wlder economy (Shlller, 2008, 1urner, 2008). 1hls downLurn has been parLlcularly acuLe ln
economles LhaL were heavlly rellanL on flnanclal servlces, lncludlng Lhe uk, affecLlng boLh wholesale
and reLall flnance. Confldence on Lhe wholesale slde was parLlcularly hard hlL followlng Lhe collapse
of Lehman 8roLhers ln Lhe uS ln SepLember 2008 and lnvesLmenL banks have announced a
conLlnulng programme of redundancles and Lakeover programmes ln an efforL Lo repalr Lhelr
balance sheeLs. Meanwhlle, reLall flnanclal flrms have sLruggled Lo access caplLal desplLe Lhe launch
of a 'ball-ouL' package for elghL hlgh sLreeL banks ln CcLober 2008. under Lhe Lerms of Lhls deal,
Lhese banks were collecLlvely able Lo access 400 bllllon ln addlLlonal caplLal, sub[ecL Lo changes ln
Lhelr buslness models lncludlng: slgnlng agreemenLs Lo llmlL Lhelr execuLlve pay and bonuses,
lncreaslng Lhelr caplLal reserves, and lssulng preference shares boughL by Lhe 1reasury. 1hls was
followed by an announcemenL ln !anuary 2009 of a package of supporL from Lhe uk governmenL
almed aL lncreaslng credlL llquldlLy ?@"0(0>"(*%A"4+#7%BCCDE8%
1hese developmenLs clearly ralse a number of lmporLanL quesLlons concernlng Lhe
susLalnablllLy of 'flnance drlven caplLallsm' (lke, 2006) ln whlch naLlonal economles such as Lhe uk's
rely heavlly on flnanclal servlces Lo drlve growLh as well as Lhe 'securlLlsed' buslness model,
lncreaslngly developed by reLall banks prlor Lo Lhe crlsls on whlch Lhey became lncreaslngly rellanL
on fundlng from caplLal markeLs. Powever, as eck (2003) has argued ln relaLlon Lo Lhe bursLlng of
Lhe doL com bubble ln Lhe early 2000s, perlods of economlc Lurbulence also offer Lhe opporLunlLy Lo
lnLerrogaLe Lhe processes and pracLlces LhaL underlay Lhe precedlng perlod of economlc growLh and
Lhe posslblllLles for growLh ln Lhe fuLure. urawlng on eck's (2003) approach, recenL evenLs such as
Lhe marked decllne ln lnLer-bank lendlng, Lhe collapse of Lhe sub-prlme morLgage markeL and broad
resLrlcLlons on credlL have hlghllghLed Lhe rlsks and LhreaLs faclng boLh wholesale and reLall flnanclal
provlders. Powever, alLhough Lhe relaLlonshlp beLween wholesale and reLall flnance ls cruclal ln
undersLandlng boLh Lhe causes and consequences of Lhe global flnanclal crlsls, Lhe ma[orlLy of Lhe
academlc, medla and pollcy communlLles' aLLenLlon Lo daLe focuses elLher on wholesale or reLall
flnance. As a resulL, Lhere ls a dearLh of daLa LhaL expllclLly focuses on Lhe naLure of Lhe relaLlonshlp
beLween Lhe Lwo.
ConsequenLly, Lhere ls conslderable need Lo seek knowledge and undersLandlng of Lhe
naLure of Lhe llnks beLween wholesale and reLall flnance ln Lhe uk. 1hls wlll allow flnanclal servlces
execuLlves, pollcy makers and academlcs Lo develop undersLandlngs of Lhe opporLunlLles, buL also



9
Lhe rlsks and LhreaLs LhaL an lnLegraLed wholesale-reLall lnLerface poses Lo flnanclal lnsLlLuLlons, Lhe
poslLlon of Lhe uk as a world leader ln global flnanclal servlces, and Lhe reproducLlon of Lhe
lnLernaLlonal flnanclal sysLem.

2.1 ro[ect A|ms and Cb[ect|ves
1he alm of Lhe research ls Lo ldenLlfy and speclfy Lhe relaLlonshlp and lnLerdependencles beLween
Lhe wholesale and reLall flnanclal secLors ln Lhe uk. 1he pro[ecL had Lhree speclflc ob[ecLlves:
1. 1o use secondary daLa and llLeraLure revlews Lo ldenLlfy Lhe acLors and acLlvlLles wlLhln Lhe
wholesale flnance secLor LhaL engage wlLh Lhe reLall flnance secLor
2. 1hrough analysls of Lhe buslness models used by reLall and wholesale flnanclal lnsLlLuLlons
(see lolkman +$%(*%2007) ldenLlfy Lhe processes and pracLlces Lhrough whlch Lhe wholesale-
reLall flnance lnLerface ls consLlLuLed ln Lhe uk and lLs relaLlonshlp Lo Lhe broader
lnLernaLlonal flnanclal sysLem
3. ldenLlfy Lhe opporLunlLles, LhreaLs and rlsks resulLlng from Lhls wholesale-reLall lnLerface ln
Lerms of Lhe uk's poslLlon as a leadlng provlder of flnanclal servlces and flnanclal servlce
flrms more broadly
1hese ob[ecLlves were fulfllled Lhrough a desk-based revlew of academlc and lndusLry-speclflc
llLeraLures on Lhe uk's wholesale and reLall flnanclal servlces lndusLry, and a deLalled analysls of
flrm-speclflc webslLes Lo undersLand how Lhe relaLlonshlp beLween wholesale and reLall flnance ls
negoLlaLed by flnanclal flrms.

2.2 ro[ect Methodo|ogy
1he research was conducLed ln Lwo sLages:
(1) A desk-based conLenL analysls of academlc and flnanclal lndusLry sources was
underLaken Lo ldenLlfy:
a. 1he deflnlLlon of Lhe uk's wholesale-reLall lnLerface (l.e. Lhe Lypes of corporaLe
acLors lnvolved ln provldlng wholesale and reLall flnanclal servlces)
b. 1he naLure of Lhe llnkages beLween wholesale and reLall flnanclal servlces flrms.
lmporLanL sources drawn on lncluded: corporaLe daLabases, annual reporLs from
wholesale and reLall flnance provlders, publlshed reporLs e.g. Lhe ClLy of London,
lnLernaLlonal llnanclal Servlces London, PM 1reasury, 8ank of Lngland, 8ank of
lnLernaLlonal SeLLlemenL, and, Lhe llnanclal Servlces AuLhorlLy.



10
(2) lrom (1) above, a daLabase was consLrucLed of 163 lnvesLmenL banks and asseL
managers LhaL provlde servlces Lo uk reLall banks. 1hls daLabase was used Lo
l. CollecL and lnLerpreL daLa on Lhe naLure of Lhe relaLlonshlp beLween ma[or
hlgh sLreeL and lnLerneL reLall banks ln Lhe uk and Lhe asseL managemenL
lndusLry ln Lerms of fund managemenL
ll. CollecL and lnLerpreL daLa on Lhe naLure of relaLlonshlp beLween ma[or hlgh
sLreeL and lnLerneL reLall banks ln Lhe uk and Lhe lnvesLmenL banklng
lndusLry ln Lerms of Lhe lssuance of debL securlLles
lll. ldenLlfy a sample of 20 lndlvldual flnanclal servlce flrms (13 lnvesLmenL
banks and 3 asseL managers) LhaL were LargeLed for deLalled lnvesLlgaLlon
drawlng on flrm speclflc web-slLes and oLher sources ln order Lo reveal Lhe
speclflc naLure of Lhe llnkages beLween wholesale and reLall flnance ln Lhe
uk.

2.3 keport Structure
SecLlon 3 of Lhe reporL ouLllnes Lhe LheoreLlcal research we draw on Lo undersLand Lhe naLure of Lhe
wholesale-reLall lnLerface and grounds Lhls ln emplrlcal deLall relaLlng Lo Lhe uk's flnanclal servlces
lndusLry (Cb[ecLlve 1). SecLlon 4 descrlbes Lhe meLhodology used ln Lhe research ln more deLall.
SecLlon 3 descrlbes Lhe maln research flndlngs concernlng Lhe processes and pracLlces Lhrough
whlch Lhe wholesale-reLall flnance lnLerface ls consLlLuLed ln Lhe uk and lLs relaLlonshlp Lo Lhe
broader lnLernaLlonal flnanclal sysLem (Cb[ecLlve 2). SecLlon 6 uses Lhese research flndlngs Lo
ldenLlfy Lhe opporLunlLles, LhreaLs and rlsks resulLlng from Lhls wholesale-reLall lnLerface ln Lerms of
Lhe uk's poslLlon as a leadlng provlder of flnanclal servlces and flnanclal servlce flrms more broadly
(Cb[ecLlve 3). SecLlon 7 summarlses Lhe flndlngs.
.



11
3. Conceptua||s|ng the who|esa|e-reta|| f|nance |nterface |n the Uk
all phases of flnanclal expanslon have lndeed been Lhe 'auLumn' of ma[or
developmenLs of world caplLallsm. 8uL Lhey have also been perlods of
2+,+4&0">%$.(0#"$"&07%ln Lhe course of whlch a new leadershlp emerged
lnLersLlLlally and over Llme reorganlzed Lhe sysLem so as Lo make lLs furLher
expanslon posslble" (Arrlghl and Sllver 2001: 261).

1hree academlc llLeraLures lnform Lhe research: flrsL, work LhaL explores Lhe changlng role of
regulaLory envlronmenLs ln shaplng economlc llfe, lncludlng LhaL relaLed Lo flnanclal servlces,
second, research LhaL examlnes Lhe ways ln whlch everyday llfe and corporaLe acLlvlLy has become
lncreaslngly Lled lnLo and connecLed wlLh Lhe lnLernaLlonal flnanclal sysLem, and Lhlrd work LhaL
examlnes Lhe naLure of flnanclal excluslon, largely from a reLall perspecLlve. We demonsLraLe how,
ln comblnaLlon, Lhese can help develop knowledge and undersLandlng of Lhe naLure of Lhe lnLerface
beLween wholesale and reLall flnance ln a uk conLexL.

3.1 De]re regu|at|on and the deve|opment of the who|esa|e-reta|| f|nance |nterface |n the Uk
1he regulaLory envlronmenL of Lhe uk has been frequenLly ldenLlfled as an lmporLanL elemenL ln
malnLalnlng Lhe compeLlLlveness of Lhe uk's flnanclal servlces lndusLry. lor example, Lhe
developmenL of Lurodollar markeLs ln Lhe 1960s and hedge funds ln Lhe 2000s ln London's flnanclal
dlsLrlcL are ofLen clLed as evldence of Lhe compeLlLlve advanLage London has accrued from 'llghL
Louch' regulaLlon (8urn 1999). 1hese debaLes can be slLuaLed ln a broader LheoreLlcal landscape of
'pollLlcal economy' LhaL seeks Lo undersLand Lhe complex relaLlonshlps LhaL exlsL beLween Lhe sLaLe
and Lhe economy. arLlcular emphasls ls placed on undersLandlng how changes ln leglslaLlon (aL a
range of spaLlal scales from naLlonal Lo lnLernaLlonal) affecL parLlcular secLors of Lhe economy such
as flnance (Leyshon and 1hrlfL, 1997). 1hls approach ls valuable ln undersLandlng Lhe po||t|ca| and
regu|atory context that fac|||tated ||nkages between who|esa|e and reta|| f|nanc|a| serv|ces to be
|ncreased and deepened from Lhe laLe 1970s onwards.
1hls conLexL cenLred on Lhe adopLlon of a neollberal pollcy reglme by Lhe uk CovernmenL
LhaL affecLed Lhe naLure of boLh wholesale and reLall flnance. uL slmple, neollberallsm ls a serles of
pollLlcal commlLmenLs LhaL promoLe Lhe wlLhdrawal of sLaLe lnLervenLlon ln boLh Lhe economy and
socleLy wlLh Lhe alm of developlng compeLlLlve, flexlble markeLs Lhrough regulaLory changes
(Leyshon & 1hrlfL, 1997).





12
3.1.1 o||t|ca| and regu|atory context |n who|esa|e f|nance
1he maln lmpacL of neollberal regulaLory changes Lo Lhe wholesale flnanclal servlces secLor was Lo
open Lhe secLor Lo enhanced lnLernaLlonal compeLlLlon LhaL alLered Lhe naLure of flnanclal servlce
flrms Lhemselves. 1hls was achleved Lhrough a serles of regulaLory changes collecLlvely known as
'8lg 8ang'. MosL slgnlflcanLly, forelgn exchange conLrols were removed by Lhe uk governmenL ln
1979 and by 1983 flxed commlsslons on Lrades were removed as forelgn banks began Lo Lrade ln
London's flnanclal markeLs (lender & Wallace, 1983). rlor Lo Lhls, 8rlLlsh and Luropean merchanL
banks operaLlng ln London had noL been members of Lhe London SLock Lxchange so could noL sell
sLocks, nor dld Lhey have sufflclenL caplLal Lo underwrlLe share lssues, so Lhey concenLraLed on
provldlng flnanclal advlce.
1hese changes ln uk wholesale flnanclal servlces were deepened furLher ln 1986 Lhrough Lhe
llnanclal Servlces AcL LhaL changed Lhe lnsLlLuLlonal seLLlng of flnanclal regulaLlon ln Lhe uk from a
dlspersed sysLem of meso-corporaLlsm loosely coordlnaLed by Lhe 8ank of Lngland Lo a sysLem of
codlflcaLlon, lnsLlLuLlonallsaLlon and [urldlflcaLlon (Moran, 1991). ln many ways Lhese reforms were
a response Lo, and mlrrored Lhose LhaL had already Laken place ln Lhe uS - an lmporLanL example of
Lhe ongolng compeLlLlon beLween London and new ?ork as lnLernaLlonal flnanclal cenLres. 1aken
LogeLher, Lhese regulaLory changes faclllLaLed Lhe developmenL of lnvesLmenL banks ln London's
lnLernaLlonal flnanclal dlsLrlcL LhaL expanded by purchaslng uk securlLles buslnesses (see 1able 3.1)
and have subsequenLly proved Lo be vlLal acLors ln undersLandlng Lhe changlng naLure of Lhe uk's
wholesale-reLall flnance lnLerface.

3.1.2 o||t|ca| and regu|atory context |n reta|| f|nance
1he regulaLory changes of 8lg 8ang also had slgnlflcanL lmpllcaLlons for Lhe developmenL of reLall
flnance ln Lhe uk. LeglslaLlve changes LhaL were mosL slgnlflcanL ln Lhls respecL were 1he llnanclal
Servlces AcL (1986) and 1he 8ulldlng SocleLles AcL (1986) (Marshall%+$%(*, 2000). 1he llnanclal
Servlces AcL allowed clearlng banks Lo offer morLgages Lo consumers, whllsL 1he 8ulldlng SocleLles
AcL allowed Lhese muLual socleLles Lo converL Lhemselves lnLo banks (a process known as
demuLuallsaLlon). As a resulL, clearlng banks began Lo operaLe reLall banklng dlvlslons whllsL some of
Lhe uk's largesL bulldlng socleLles became reLall banks. 1hese Lwo Lypes of lenders began Lo
compeLe for Lhe flrsL Llme as prevlously Lhe bulldlng socleLles and clearlng banks were resLrlcLed
from compeLlng ln Lhe same markeLs. As a resulL of Lhese changes, bulldlng socleLles such as Alllance
& LelcesLer, Lhe Pallfax, norLhern 8ock, Abbey naLlonal and 8radford & 8lngley chose Lo become
banks ln order Lo be able Lo access larger volumes of exLernal caplLal from Lhe lnLernaLlonal caplLal
markeLs Lo compeLe wlLh Lhe larger clearlng banks LhaL had begun Lo offer morLgages.



13
A()*+%F8GH%I(*+%&'%<J%'"0(0>"(*%'".4#7%GDKDLBCCC
Uk I|rm urchaser ear r|ce ( m||||on)
Morgan Crenfall ueuLsche 8ank 1989 930
8arlngs lnC 1993 1 plus llablllLles
Warburgs Swlss 8ank CorporaLlon 1993 860
klelnworL 8enson uresdner 8ank 1993 1,000
SmlLh new CourL Merrlll Lynch 1993 326
8ZW (8arclays-parL) CSl8 1997 100
naLwesL markeLs
(parL)
8ankers 1rusL/ueuLsche
8ank
1997 129
Pambros SocleLeCenerale/lnvesLec 1997 738
Mercury AsseL
ManagemenL
Merrlll Lynch 1997 3,100
Schroders (parL) ClLlgroup 2000 1,330
llemlngs Chase ManhaLLan 2000 4,800
?I&-.>+H%=&)+.$#%(05%JM0(#$&0%BCCGH%DNE%
1hls enhanced compeLlLlon beLween a new breed of reLall bank, parLlcularly ln Lhe morLgage
markeL, was one of Lhe early examples of how Lhe lnLerface beLween wholesale and reLall flnance
would develop. Smaller reLall banks found LhaL ln order Lo galn a slgnlflcanL markeL share and
remaln compeLlLlve - now havlng Lo meeL shareholder demands for reLurns on Lhelr lnvesLmenLs - lL
was necessary Lo obLaln addlLlonal fundlng from exLernal lnvesLors (PallsworLh & Sklnner, 2008,
WalnwrlghL, 2009). ln response, Lhey Lurned Lo Lhe enlarged lnvesLmenL banklng secLor Lo sLrucLure
and dlsLrlbuLe debL securlLles Lo help Lhem ralse cash, parLlcularly Lhrough Lhe lssuance of medlum-
Lerm noLes (M1ns), 8M8S securlLlsaLlons, credlL card A8S and covered bonds.

3.2 Lveryday ||fe and the deve|opment of the who|esa|e-reta|| f|nance |nterface |n the Uk
1he second body of academlc llLeraLure LhaL ls lnsLrucLlve ln developlng knowledge and
undersLandlng of Lhe naLure of Lhe wholesale-reLall flnance lnLerface ln Lhe uk ls work lnLo a seL of
processes collecLlvely known as flnanclallzaLlon LhaL are argued Lo be parLlcularly well-developed ln
Anglo-Amerlcan economles. rocesses lncluded under Lhls umbrella Lerm lnclude: Lhe domlnance of
Lhe flnanclal servlces secLor ln naLlonal economles, noLably Lhe uS and uk (8oyer, 2000), Lhe
growlng lmporLance of flnanclal meLrlcs, especlally shareholder value ln drlvlng corporaLe declslon
maklng ln a range of secLors (lroud +$%(*7%2006), and, Lhe ways ln whlch lndlvlduals' everyday llves
and household declslon marklng are lncreaslngly Lled lnLo Lhe lnLernaLlonal flnanclal sysLem (MarLln,



14
2002, Langley, 2006). 1he second and Lhlrd sLrands of Lhls llLeraLure are parLlcularly lmporLanL for
Lhls reporL.
1he second sLrand hlghllghLs Lhe ways ln whlch dellverlng shareholder value has become
lncreaslngly lmporLanL for reLall banks and demuLuallsed bulldlng socleLles. lndeed, LrLurk and Solarl
(2007) have argued LhaL banks have become acLlve agenLs of flnanclallzaLlon by selllng a mulLlLude
of dlfferenL flnanclal producLs LhaL cenLre on fee generaLlon. 1he focus of reLall banks on generaLlng
shareholder value means LhaL reLall banks have become more deeply lnLegraLed wlLhln hlgh-flnance
Lhrough lnvesLmenL banks as Lhey have frequenLly used debL lssuance -alded Lhrough lnvesLmenL
banks - Lo dellver hlgher shareholder reLurns. 1hls has also embedded reLall banks more deeply lnLo
Lhe reLall-wholesale neLwork, as asseL managers have hlsLorlcally lnvesLed ln flnanclal servlce
provlders such as reLall banks due Lo Lhelr hlgh-reLurns (WalnwrlghL, 2009), whlch ln Lurn are
recycled Lhrough Lo reLall lnvesLors. A parLlcularly lmporLanL sLraLegy ln dellverlng Lhls reLurn Lo
shareholders has been Lhe use of securlLlsaLlon by uk reLall lenders. 1hls ls because securlLlsaLlon
enables banks Lo generaLe shareholder value as lenders are able Lo clrculaLe Lhelr caplLal more
qulckly produclng more morLgages and Lhe posslblllLy of greaLer reLurns (Leyshon and 1hrlfL, 2008,
uymskl, 2007).
Meanwhlle, work on Lhe flnanclallzaLlon of everyday llfe has examlned how neollberal sLaLe
pollcles ln counLrles such as Lhe uk have effecLlvely ouLsourced whaL were sLaLe acLlvlLles Lo prlvaLe
buslnesses parLlcularly Lhrough Lhe reducLlon of Lhe welfare sLaLe and penslon provlslons. ln Lerms
of flnance, research has focused on how consumer penslons and savlng provlslons are becomlng
prlvaLlsed and lnLegraLed wlLhln Lhe flnanclal markeLs where asseL managers have become cenLral ln
managlng Lhe penslon funds and savlngs of consumers (lroud%+$%(*, 2000, 2002). 1hls ls parLlcularly
evldenL ln Lhe demlse of deflned beneflL penslon schemes and Lhe concomlLanL rlse ln deflned
conLrlbuLlon schemes (Clark and WhlLeslde, 2003). Moreover, Lhe 8rlLlsh CovernmenL has also
Laken acLlve sLeps Lo Lransform cusLomers from passlve savers lnLo acLlve lnvesLors Lhrough Lhe
developmenL of producLs such as lSAs and Chlld 1rusL lunds (Langley, 2006). ln order Lo undersLand
Lhls role of Lhe consumer ln shaplng Lhe wholesale reLall lnLerface ln more deLall, research on
flnanclal lncluslon and excluslon ls also lmporLanL.

3.3 I|nanc|a| exc|us|on, f|nanc|a| ||teracy and the deve|opment of the who|esa|e-reta|| f|nance
|nterface |n the Uk
WhllsL work on regulaLory conLexLs and flnanclallzaLlon are lnsLrucLlve for undersLandlng Lhe
developmenL of Lhe wholesale-reLall lnLerface, ln order Lo undersLand lLs lmpllcaLlons, parLlcularly
on Lhe reLall slde, research on flnanclal excluslon ls valuable. AL lLs broadesL 'flnanclal excluslon'



13
refers Lo Lhose processes LhaL serve Lo prevenL cerLaln soclal groups and lndlvlduals from galnlng
access Lo Lhe flnanclal sysLem" (LeyLon and 1hrlfL 1993: 314). LeyLon (2009: 133) has subsequenLly
ldenLlfled mulLlple dlmenslons Lo flnanclal excluslon ranglng from access excluslon resulLlng from
branch closures, Lhrough condlLlon excluslon where cusLomers fall Lo meeL Lhe mlnlmum
sLlpulaLlons of a flnanclal producL, Lo markeLlng excluslon where deslrable consumers are LargeLed
for flnanclal producLs aL Lhe expense of less proflLable consumers.
1he mulLlple elemenLs of flnanclal excluslon are relaLed Lo wlder changes ln reLall flnanclal
servlces provlslon LhaL are ln Lurn relaLed Lo Lhe llnkages beLween reLall and wholesale flnance. ln
parLlcular, Lhe lncreased compeLlLlon wlLhln Lhe reLall secLor coupled wlLh Lhe lmperaLlve Lo dellver
shareholder value has resulLed ln reLall flnanclal lnsLlLuLlons lncreaslngly focuslng on poLenLlally
more proflLable consumers (LeyLon, 2009) such as offerlng premlum banklng servlces Lo cerLaln
cusLomers and charglng hlgher lnLeresL raLes Lo cusLomers percelved Lo represenL a hlgher rlsk as ln
Lhe case of sub-prlme morLgages (see ulsk, 2007). 1herefore, an lmporLanL facLor ln debaLes
concernlng Lhe naLure of flnanclal excluslon has been Lhe ways ln whlch flnanclal producLs are sold
Lo cusLomers. ln Lhls respecL, Lhe regulaLory changes of '8lg 8ang' redeflned Lhe relaLlonshlp
beLween reLall banks and asseL managers by deLermlnlng Lhe range of producLs LhaL could be
offered by Lhe banks Lo Lhelr reLall lnvesLors. 1he llnanclal Servlces AcL (1986) wlLnessed Lhe
developmenL of Lhe SecurlLles & lnvesLmenLs 8oard (Sl8) whlch concluded LhaL consumers were
frequenLly mlss-sold flnanclal producLs, such as llfe assurance and penslons, and LhaL flnanclal
servlce provlders ofLen sold flnanclal producLs LhaL beneflLLed Lhelr sales and commlsslons, noL Lhelr
consumers (Smee, 2002).
1he Sl8 aLLempLed Lo overcome Lhls problem by lmplemenLlng a pollcy LhaL became known
as polarlsaLlon wlLhln Lhe savlngs lndusLry. 1hls pollcy sLlpulaLed LhaL flnanclal servlce provlders had
Lo place Lhemselves ln one of Lwo groups. Companles ln Lhe flrsL group became known as unLled
flnanclal provlders, such as lf's, and were able Lo advlse across a range of dlfferenL producLs coverlng
Lhe enLlre markeL. Companles ln Lhe second group, known as Lled provlders, could only offer
flnanclal producLs supplled by one company. 1he alm of Lhls leglslaLlon was Lo help consumers
undersLand lf Lhey were belng glven lmparLlal advlce, or noL, by reveallng whlch advlsers were
lndependenL and whlch were Lled Lo a parLlcular servlce provlder. uesplLe proLesLaLlons from Lhe
Cfflce of lalr 1radlng LhaL Lhls sysLem was uncompeLlLlve, so-called polarlsaLlon became Lhe lndusLry
rule. ConsequenLly, reLall banks fell lnLo Lhe Lled caLegory and were only able Lo offer producLs from
one asseL managemenL company (Smee, 2002).
1hls regulaLlon reduced Lhe number of asseL managemenL flrms LhaL could offer Lhelr
producLs Lhrough reLall banks, whlch ln Lurn reduced Lhe denslLy of Lhe relaLlonshlps beLween Lhe



16
reLall banks and asseL managemenL flrms. 1he llnanclal Servlces AuLhorlLy (lSA) evenLually
superseded Lhe Sl8 and reversed Lhe polarlsaLlon rule Lhrough a pollcy of 'depolarlsaLlon' LhaL
soughL Lo lmprove consumer cholce ln Lhe reLall servlces secLor, whllsL seeklng Lo empower
consumers (8lng, 2004). uepolarlsaLlon effecLlvely converLed Lhe 'Lled' agenLs Lo mulLl-Lled agenLs.
AlLhough reLall banks, as mulLl-Lled agenLs, were are noL allowed Lo clalm Lo be lndependenL, Lhey
were able Lo offer producLs from a wlder range of asseL managers, whlle unLled provlders, llke lf's,
were made Lo charge Lhelr cllenLs a fee, Lhus demonsLraLlng Lhelr lndependence. SupporLers of
depolarlsaLlon argued LhaL consumers falled Lo shop around for Lhe besL deals when provlders were
Lled Lo Lhe producLs of one company, whlle Lhey were also relucLanL Lo seek advlce from unknown
lf's. As such, Lhe mlss-selllng of flnanclal producLs may have decllned, buL cusLomers falled Lo flnd
Lhe besL flnanclal soluLlons for Lhelr savlng and lnvesLmenL needs. SupporLers also clalmed LhaL Lhe
mosL recenL changes ln 2004 provlded reLall consumers wlLh access Lo a wlde range of lnvesLmenL
producLs Lhrough Lhelr reLall banks. Powever, work on flnanclal excluslon polnLs Lo Lhe ways ln
whlch some consumers are more able Lo access Lhls new wholesale-reLall lnLerface concernlng asseL
managemenL.



17
4. kesearch methodo|ogy
ln order Lo undersLand Lhe processes assoclaLed wlLh Lhe changlng naLure of Lhe wholesale-reLall
lnLerface ln Lhe uk conLexL ln more deLall, a Lwo-sLage desk-based research meLhodology was
adopLed ln order Lo:
(1) CollecL daLa concernlng Lhe operaLlons of wholesale flnanclal servlces flrms, parLlcularly
lnvesLmenL banks operaLlng wlLhln Lhe uk and asseL managers Lo undersLand Lhe naLure of
Lhe servlces Lhey provlde Lo uk reLall banks. 1hls daLa was analysed Lo provlde lnslghLs lnLo
Lhe characLerlsLlcs of lnvesLmenL banks and asseL managemenL flrms lnvolved ln Lhe
wholesale-reLall lnLerface paylng parLlcular aLLenLlon Lo Lhe Lype of servlces Lhey offer, Lhelr
relaLlve lmporLance and Lhelr geographlcal orlglns ln order Lo slLuaLe Lhe uk's wholesale-
reLall lnLerface ln Lhe conLexL of Lhe wlder lnLernaLlonal flnanclal sysLem.
(2) ldenLlfy a sLrucLured sample of 20 flrms (lnvesLmenL banks and asseL managers) LhaL were
sub[ecLed Lo deLalled research. 1hls produced Lhree furLher sub daLaseLs on: Lhe lnLerface
beLween reLall banks and asseL managemenL, Lhe lnLerface beLween reLall banks and
lnvesLmenL banklng, and Lhe deLalled acLlvlLy of lnvesLmenL banks ln relaLlon Lo reLall
flnanclal servlces.

4.1 Spec|fy|ng the actors |nvo|ved |n creat|ng the Uk's who|esa|e-reta|| f|nance |nterface
ln order Lo ldenLlfy wholesale flnanclal servlce flrms lnvolved ln provldlng servlces Lo reLall flrms,
four daLa sources were revlewed ln deLall:
(1) lnformaLlon from Lhe llnanclal Servlces AuLhorlLy
1
was used Lo obLaln a deflnlLlve llsL of
lnvesLmenL banks LhaL are auLhorlsed Lo operaLe ln Lhe uk.
(2) 1hls daLa was LrlangulaLed wlLh daLaseLs from Ll8A - Lhe London lnvesLmenL 8ank
AssoclaLlon - Lo ensure LhaL all of lLs members were also lncluded wlLhln Lhe daLabase.
(3) A deflnlLlve llsL of asseL managemenL flrms operaLlng ln Lhe uk was obLalned from Lhe
lnvesLmenL Managers AssoclaLlon (lMA) Lo flnd asseL managers LhaL produce or provlde
funds offered by reLall banks Lo Lhelr cllenLs.
(4) 1he corporaLe webslLe of every flrm ldenLlfled ln sLages (1)-(3) above was revlewed Lo
ensure LhaL Lhelr >-..+0$%operaLlons fell wlLhln Lhe remlL of Lhe research.


1
hLLp://www.fsa.gov.uk/pubs/llsL_banks/2009/apr09.pdf



18
uaLa from sLages (1)-(4) was used Lo produce a comprehenslve daLabase of 163 wholesale flrms LhaL
provlde flnanclal servlces Lo reLall banks ln Lhe uk. An lnlLlal plloL sLudy of 20 flrms was conducLed
Lo revlew Lhe range of daLa avallable on each of Lhese flrms. lollowlng Lhls, 7 caLegorles of daLa
were devlsed for each flrm ln Lhls daLabase as follows:
?GE !"#$%"&'(&)*'+,',#-%-.#%/'0*"1#.*2'1hls separaLes each flnanclal servlce provlder lnLo a
speclflc caLegory of elLher lnvesLmenL bank or asseL manager.
?BE 3"#4#-2 1hls lnformaLlon lncludes daLa on Lhe geographlcal orlglns of each servlce provlder
LhaL can be used Lo deLermlne lf Lhere ls a relaLlonshlp beLween Lhe locaLlon of a servlce
provlder and lLs producL range. 1he geographlcal areas orlglnally focussed on lncluded Lhe
uk, uS, !apanese and conLlnenLal Luropean wholesale servlce provlders, due Lo Lhelr long
sLandlng role ln Lhe lnLernaLlonal flnanclal sysLem (LeyLon and 1hrlfL, 1997). Powever,
Canadlan, AusLralaslan and Afrlcan based wholesale servlce provlders were also observed
and subsequenLly reglsLered ln Lhe daLabase
?FE 5+.%(#+-2 osLcode daLa was lncluded ln Lhe daLabase Lo record where Lhe servlce provlders
can be locaLed and where Lhelr producLs are produced. 1hls was used Lo ldenLlfy Lhe
geographles of wholesale flnance servlce provlders lnvolved ln shaplng Lhe wholesale-reLall
lnLerface ln Lhe uk
?OE 67$8*"'+,'*$)/+&**02 1hls lnformaLlon was used Lo deLermlne Lhe slze of Lhe wholesale
servlce provlders. llve classlflcaLlons were used for Lhe lnvesLmenL banks. Class A lncludes
lnvesLmenL banks wlLh 100,000 or more, employees, Class 8 lncludes banks wlLh beLween
30,000 Lo 99,999 employees, Class C lnvesLmenL banks employ beLween 10,000 Lo 49,999
members of sLaff, Class u lnvesLmenL banks employ beLween 1,000 and 9,999 lndlvlduals
and Lhe smallesL lnvesLmenL banks - Class L - employed less Lhan 1,000 members of sLaff.
1here were four caLegorles for Lhe asseL managers: Class A asseL managers employed over
10,000 employees, Class 8 flrms employed beLween 1,000 and 9,999 members of sLaff, Class
C asseL managers employed beLween 100 and 999 lndlvlduals, and Lhe smallesL asseL
managers - Class u -employed less Lhan 100 people. 1hese classlflcaLlons were calculaLed by
ranklng Lhe flrms ln order of employee slze, before locaLlng breaks beLween Lhe employee
numbers where lL was clear LhaL Lhere were dlfferenL caLegorles of wholesale servlce
provlders based on slze.
?PE 9:*-(#,#*:'./#*-(02 1hls daLa lncludes any observed lnlLlal llnks beLween Lhe wholesale servlce
provlders and uk reLall banks - avallable from Lhe corporaLe webslLes. 1hese were used as a
sLarLlng polnL for Lhe second sLage of Lhe research
?NE ;/#*-('.+:*2 1hls daLa llsLs whaL Lype of reLall flnanclal servlce provlder ls provlded wlLh
servlces by Lhe wholesale suppllers, lncludlng, clearlng banks (Cl8) and reLall banks (88), buL
also bulldlng socleLles (8S) and cenLrallsed lenders (CL) Lo draw aLLenLlon Lo reLall servlce
provlders LhaL engage wlLh wholesale servlce provlders, ln addlLlon Lo uk reLall banks. 1he
followlng deflnlLlons were used: clearlng banks are banks LhaL have hlsLorlcally engaged ln
boLh commerclal and reLall banklng, reLall banks have hlsLorlcally focussed on consumer
banklng and are frequenLly demuLuallsed bulldlng socleLles or newer lnLerneL banks,
bulldlng socleLles are owned by Lhelr members and are noL publlc companles whlle
cenLrallsed lenders Lend Lo offer morLgages and credlL cards buL do noL Lake consumer
deposlLs.



19
?QE !"+:7.(02 1hls daLa llsLs Lhe servlces provlded Lo reLall banks by wholesale servlce provlders.
1hls lncludes Lhe servlces provlded by lnvesLmenL banks Lo help Lhem access Lhe caplLal
markeLs, buL also Lhe Lypes of fund supplled by asseL managemenL flrms, ln order Lo uncover
whlch asseL classes could be offered Lo reLall banks and subsequenLly Lo Lhelr consumers.

4.2 Lxp|or|ng the ||nkages w|th|n the Uk's who|esa|e-reta|| f|nance |nterface
Cnce Lhe core daLabase had been developed, Lhree addlLlonal daLabases were produced LhaL
conLaln lnformaLlon on llnks beLween uk reLall banks, lnvesLmenL banks and asseL managers
Lo uncover Lhe neLworked relaLlons LhaL exlsL beLween Lhese dlfferenL flrms:
(1) 1he flrsL daLabase focuses on ma[or hlgh sLreeL and lnLerneL reLall banks LhaL operaLe
wlLhln Lhe uk Lo reveal whlch uk reLall banks seek producLs from asseL managers. 1he reLall
banks were ldenLlfled Lhrough Lhe llnanclal Servlces AuLhorlLy's llsL of reLall banks, and were
lncluded ln Lhe daLabase lf Lhey sold producLs managed by exLernal asseL managemenL flrms,
or lf Lhelr fund(s)were managed by an exLernal provlder, whlch was recorded ln Lhe daLabase.
'8eLall banks' LhaL have been absorbed wlLhln larger banklng groups - such as Lhe Woolwlch's
absorpLlon by 8arclays - were excluded. Powever, reLall banks LhaL have recenLly been
purchased by larger banklng groups buL are operaLlng wlLh a degree of auLonomy, such as
Alllance & LelcesLer, are lncluded separaLely from Lhelr parenL group. lor each producL LhaL
was observed, Lhe asseL manager's name and Lhe name of Lhe fund was recorded, as ouLllned
by Lhe reLall bank, as well as Lhe asseL classes LhaL Lhe fund lnvesLs ln. 1hls lnformaLlon
provldes lnslghL lnLo where Lhe reLurns from Lhese lnvesLmenLs are obLalned, and why Lhey
are of lnLeresL Lo reLall banks and Lhelr consumers.
(2) 1he second daLabase focuses on Lhe servlces provlded Lo uk reLall banks by lnvesLmenL banks
wlLh regard Lo ralslng funds Lhrough Lhe lssue of debL securlLles. As Lhe uk reLall bank markeL
became heavlly rellanL on ralslng caplLal Lhrough lnLernaLlonal money markeLs slnce Lhe 1990s, as
opposed Lo Lhrough consumer deposlLs Lo fund Lhelr lendlng (WalnwrlghL, 2009), Lhls daLabase
reveals whlch lnvesLmenL banks are lnvolved ln provldlng access Lo Lhe caplLal markeLs for uk reLall
banks. 1hls daLa ls used Lo explore how Lhe relaLlonshlp beLween lnvesLmenL banks and reLall banks
wlll change as a consequence of Lhe credlL crunch, hlghllghLlng Lhe sLrengLhs, opporLunlLles and
LhreaLs of Lhese relaLlonshlps. 1hls daLabase lncludes Lhe uk reLall banks LhaL lssue debL securlLles
Lhrough lnvesLmenL banks LhaL were ldenLlfled by lnformaLlon provlded ln Lhelr corporaLe
documenLaLlon or by bond-raLlng agency webslLes. 1he servlces provlded cenLred on Lhree common
Lypes of debL securlLles lssued by reLall banks: medlum Lerm noLes (M1ns), 8esldenLlal morLgage
backed securlLles (8M8S), and covered bond lssuances (C8ond). 1he corporaLe webslLes, usually Lhe



20
'debL lnvesLor' areas, were examlned and llsLs of Lhe lnvesLmenLs banks and Lhe servlces LhaL Lhey
provlded were recorded. 1hese lnclude Lhe lead arrangers who sLrucLure and arrange Lhe lssuance of
Lhe bonds, and Lhe lnvesLmenL banks worklng as dealers who ald Lhe lead arrangers ln selllng Lhe
bonds Lo lnvesLors.
(3) 1he Lhlrd daLabase was developed Lo focus on a sLraLlfled selecLlon of LwenLy wholesale
companles Lo be sub[ecLed Lo addlLlonal analysls concernlng Lhelr relaLlonshlp wlLh reLall flnance.
1hls sLraLlfled sample of flrms conLalns flfLeen lnvesLmenL banks and flve asseL managers and has
been sLrucLured Lo ensure LhaL Lhe dlfferenL servlce provlders ln Lhe sample represenL Lhe dlverse
mlx of aLLrlbuLes of dlfferenL wholesale flnanclal lnsLlLuLlons, ln parLlcular, Lhelr geography,
employee slze and producLs ranges, ln order Lo provlde a balanced daLaseL. uaLa was collecLed from
relevanL academlc llLeraLures, corporaLe documenLaLlon and lndusLry reporLs (e.g. lnLernaLlonal
llnanclal Servlces London, ClLy of London CorporaLlon). 1he alm of Lhls exerclse was Lo examlne ln
more deLall Lhe flnanclal producLs offered, more closely undersLand Lhe parLlcular needs of Lhese
speclflc groups and how Lhese needs wlll change ln llghL of Lhe currenL flnanclal crlsls.



21
S. kesearch I|nd|ngs 1: Spec|fy|ng the nature of the who|esa|e-
reta|| f|nanc|a| serv|ces |nterface |n the Uk
1hls secLlon ldenLlfles Lhe naLure of Lhe llnkages beLween hlgh sLreeL and lnLerneL reLall banks, asseL
managers and lnvesLmenL banks ln Lhe uk. lL beglns by flrsL, ouLllnlng Lhe relaLlve lmporLance of
dlfferenL Lypes of flnanclal servlces provlders ln boLh wholesale and reLall flnance. Second, we deLall
Lhe naLure of Lhe flnanclal servlces LhaL llnk Lhese flrms. 8y undersLandlng Lhe naLure of Lhese
llnkages, Lhe lmpllcaLlons for Lhe changlng naLure of Lhe wholesale-reLall lnLerface can be explored ln
secLlon 6. llndlngs are lllusLraLed wlLh daLa from Lhe Lhree daLabases and lndlcaLlve vlgneLLes.

S.1. 1rac|ng the networks of reta|| bank|ng and who|esa|e bank|ng: Who's who.
A LoLal of 163 wholesale flnanclal flrms offerlng servlces appllcable Lo Lhe reLall-banklng secLor ln Lhe
uk were ldenLlfled durlng Lhe research (47 lnvesLmenL banks and 116 asseL managers). ln Lerms of
reLall banklng, Lhe research focused on 12 operaLlonal uk reLall banks - havlng excluded reLall banks
LhaL are flrmly lnLegraLed wlLhln larger flrms. 1hls sample lncludes four reLall banks LhaL are
relaLlvely new, havlng demuLuallsed ln Lhe 1990s, a perlod when many bulldlng socleLles converLed
Lhe sLaLus lnLo banks (Marshall%+$%(*, 2000). An lmporLanL observaLlon surroundlng Lhe
'demuLuallsed banks' has been Lhelr propenslLy Lo sLruggle durlng Lhe credlL crunch, a consequence
of Lhelr dependence on Lhe llquldlLy of Lhe lnLernaLlonal caplLal markeLs whlch Lhey used Lo fund and
grow Lhelr buslnesses afLer demuLuallsaLlon(PallsworLh & Sklnner, 2008). lor example, boLh
norLhern 8ock and 8radford & 8lngley have recenLly been naLlonallsed as a resulL of Lhe credlL
crunch, whlle Abbey purchased by 8ancoSanLander, prlor Lo Lhe crunch, has slnce purchased Lhe
branch neLwork of 8radford & 8lngley and Alllance & LelcesLer. 1he P8CS group
2
, lncludlng Lhe
demuLuallsed Pallfax, has also become parL of Lhe Lloyd's group as a consequence of Lhe credlL
crunch.

S.2. Internat|ona| |nvestment banks and Uk reta|| bank|ng
lnvesLmenL banks LhaL offer flnanclal servlces ln Lhe ClLy of London Lo uk reLall banks are
headquarLered across seven geographlcal areas, Lhe proporLlons of whlch are lllusLraLed ln llgure
3.1. lnvesLmenL banks whose orlglns lle ln Lhe uS accounL for Lhe greaLesL concenLraLlon (13 banks,

2
P8CS ls classlfled ln Lhls reporL as a clearlng bank due Lo lLs 8ank of ScoLland arm and commerclal banklng
acLlvlLles, and lLs ablllLy Lo securlLlze lLs own morLgage porLfollos.



22
39 per cenL) reflecLlng Lhe growLh of uS lnvesLmenL banks ln Lhe ClLy followlng 8lg 8ang dlscussed
above. 1hls ls followed closely by conLlnenLal Lurope, wlLh 12 lnvesLmenL banks offerlng servlces Lo
uk reLall banks (23.3 per cenL), followed by 11 'global' uk lnvesLmenL banks LhaL offer servlces Lo
reLall banks wlLhln Lhe uk. Less slgnlflcanL headquarLer locaLlons for lnvesLmenL banks offerlng
servlces Lo uk reLall banks, lnclude !apan (10.6 per cenL), Canada (4.3 per cenL), Afrlca (2.1 per cenL)
and AusLralla (1 bank).
1hls lnLernaLlonal dlsLrlbuLlon of lnvesLmenL banklng servlces offered Lo uk reLall banks ls
lmporLanL because
(1) lnvesLmenL banks headquarLered ln dlfferenL counLrles have dlfferenL 'corporaLe
culLures' (Schoenberger, 1997). 1hese dlfferenL corporaLe culLures (ranglng from worklng
pracLlces and dress codes Lhrough Lo flnanclal servlces speclallLles) LranslaLe lnLo
dlfferences ln Lhe servlces offered Lo reLall banks (compare for example vlgneLLes 1-4 ln
Lhe case of !apanese, uS, uk and Luropean lnvesLmenL banks respecLlvely.
(2) Lhey offer lnvesLmenL banks Lhe capablllLy Lo lncrease Lhe slze of Lhe markeL for Lhe debL
securlLles of uk reLall banks e.g. M1nS and 8M8S noLes, by markeLlng and placlng bonds
wlLh lnvesLors ln wlder geographlcal markeLs. Clven Lhe dlfferenL experlences of Lhe so-
called global flnanclal crlsls LhaL has hlL norLh Amerlcan and Luropean markeLs far harder
Lhan Lhose of emerglng flnanclal cenLres such as Lhe Mlddle LasL and SouLh LasL Asla
(Sldeway, 2008), employlng Lhe servlces of lnLernaLlonal lnvesLmenL banks offers
slgnlflcanL advanLages Lo uk reLall banks.
I|gure S.1: 1he geographlcal orlglns of lnvesLmenL 8anks servlclng reLall flnance and operaLlng
wlLhln Lhe uk


Afrlca
AusLralasla
Canada
!apan
Lurope
uk
uS



23
V|gnette 1: ualwa, !apanese wholesale-reLall banker
ualwa SecurlLles SM8C Lurope ls a [olnL venLure beLween ualwa SecurlLles and SumlLomo MlLsul
llnanclal Croup, based ln !apan. ualwa's London offlce opened ln 1964 and provldes servlces for
cllenLs wanLlng Lo purchase or lssue equlLy, flxed lncome, and derlvaLlve producLs. unllke Lhe
ma[orlLy of uS and Luropean lnvesLmenL banks, ualwa does noL offer securlLlsaLlon or covered bond
servlces. 8aLher lL offers lnLernaLlonal capablllLy Lo uk reLall banks Lhrough Lhe followlng servlces.
(1) M&A advlce, speclallslng ln Luropean and !apanese LransacLlons, lncludlng demergers and [olnL
venLures. 1hls ls achleved Lhrough an M&A Leam comprlslng 130 bankers worklng ln lLs London,
1okyo, Csaka, Pong kong, Shanghal, 8el[lng, Slngapore and new ?ork Cfflces.
(2) lLs equlLy buslness whlch covers !apanese, Aslan and Luropean equlLles.
(3) 8lsk managemenL servlces uslng derlvaLlves Lo address Lhe rlsks assoclaLed wlLh lnLeresL raLe
changes, currency and equlLles.
(4) lLs dlsLrlbuLlon of debL securlLles lncludlng Luropean governmenL bonds and Luropean corporaLe
flxed lncome securlLles.
(3) laclng Luropean medlum Lerm noLes (M1ns) wlLh lnsLlLuLlonal lnvesLors ln !apan and Asla and
provldes debL lssuers wlLh asslsLance ln sLrucLurlng and promoLlng Lhe securlLles e.g. ualwa acLed as
a dealer for Alllance and LelcesLer's M1n programme.
I&-.>+#H%hLLp://www.dalwasmbc.co.[p/engllsh/lndex.hLml,
hLLp://www.dalwasmbc.co.[p/engllsh/servlces/lndex.hLmlhLLp://www.dalwasmbc.co.[p/engllsh/company/proflle.hLml
,hLLp://www.dalwasmbc.co.uk/dalwa-news/news-alllance-and-lelcesLer-eurodollar-frn-deal-summary.php access 8/03/09

V|gnette 2: Merrlll Lynch, uS wholesale-reLall banker
Merrlll Lynch was founded ln 1914 and grew Lo become one of Lhe world's largesL lnvesLmenL banks.
lL became a subsldlary of 8ank of Amerlca ln 2009 ln an efforL Lo repalr lLs balance sheeL followlng
Lhe credlL crunch. Comblned wlLh 8ank of Amerlca, Lhe new group offers servlces Lo cllenLs ln 130
counLrles lncludlng:
(1) CorporaLe and lnvesLmenL banklng servlces e.g. commerclal lendlng, caplLal-ralslng and merger
and acqulslLlon advlsory servlces and dlvesLure advlsory.
(2) underwrlLlng Lhe lssuance of debL and equlLy securlLles, ralslng uS$3 Lrllllon for lLs cllenLs ln Lhe
lasL 10 years.
(3) SecurlLlsaLlon Lhrough lLs secured flnanclng and real esLaLe group, securlLlslng commerclal
morLgages, resldenLlal morLgages, and oLher asseL-backed securlLles CM8S and A8S, as well as non-
credlL sLrucLured flnance acLlvlLles.
(4) Servlces Lo uk reLall banks e.g. Merrlll acLed as Lhe lead arranger -or book runner- for Lhe M1n
LransacLlons for 8radford & 8lngley and [olnL manager for Lhe 8oyal 8ank of ScoLland, whlle acLlng as
a bond dealer Lo dlsLrlbuLe Lhe M1ns for Lhe Clydesdale 8ank - and lLs parenL group naLlonal
AusLralla 8ank's - global debL lssuance programme.
(3) uerlvaLlves and Lallored sLrucLured producLs Lo manage llablllLles, ln parLlcular, forelgn
exchange, and lnLeresL raLe derlvaLlves, lncludlng nlche producLs such as weaLher derlvaLlves.
I&-.>+#H%hLLp://www.ml.com/lndex.asp?ld=7693_8134_8299_6707hLLp://www.ml.com/lndex.asp?ld=7693_8134,
hLLp://gml.ml.com/lnvesL_bank/,hLLp://gml.ml.com/globalmarkeLs/flcc.asp, hLLp://www.euroweek.com/ArLlcle/2297443/nA8-snaLches-
LlghLesL-Ller-one-prlnL-record.hLml (all accessed: 8/03/2009),hLLp://producLlon.lnvesLls.com/bbg/slLeware/mLn_new080910.pdf
(Accessed: 9/11/09)



24
V|gnette3: 8arclays caplLal, 8rlLlsh wholesale-reLall banker
8arclays has a dlverse background, Lraclng lLs hlsLory back Lo 1690 ln London. ln 1986 lL developed an
lnvesLmenL banklng operaLlon, now known as 8arclays CaplLal. 8arclays CaplLal purchased Lehman 8roLhers'
norLh Amerlcan lnvesLmenL banklng and caplLal markeLs buslnesses ln 2008 glvlng lL access Lo all uS markeLs
lncludlng equlLles, credlL, flxed lncome, mergers and acqulslLlons, commodlLles Lradlng and forelgn exchange.
lL offers Lhe followlng servlces:
(1) Work wlLh uk reLall banks e.g. as [olnL arrangers for Abbey's 8M8S and covered bond programme, [olnL
arranger on Alllance and LelcesLer's 8M8S programme, and a [olnL M1n dealer for Lhe CooperaLlve 8ank,
8radford & 8lngley and Lhe Clydesdale 8ank.
(2) llnanclal advlsory, lncludlng advlce on mergers and acqulslLlons, resLrucLurlng, equlLy ralslng, rlghLs lssues
leveraged buy-ouLs and dlvesLures.
(3) Access Lo debL markeLs for reLall banks by orlglnaLlng, sLrucLurlng and markeLlng securlLles Lo lnvesLors.
(4) lssuance of bonds, loans, asseL-backed securlLles, commerclal paper and hybrld caplLal.
I&-.>+#H%
hLLp://www.barcap.com/AbouL+8arclays+CaplLal/Cur+llrm,hLLp://www.barcap.com/AbouL+8arclays+CaplLal/Cur+llrm/Cur+PlsLory,hLLp:
//www.barcap.com/CllenL+offerlng/lnvesLmenL+8anklng/Clobal+llnance+and+8lsk+SoluLlonshLLp://www.barcap.com/CllenL+offerlng/Clo
bal+MarkeLs/SecurlLlsaLlon (Accessed: 11/03/2009)
V|gnette 4: Deutsche 8ank, a Luropean who|esa|e-reta|| banker
ueuLsche 8ank was founded ln 8erlln ln 1870 by a group of prlvaLe bankers led by AdelberLuelbruck. As early
as 1873, ueuLsche 8ank had esLabllshed a branch ln London, whlch was laLer closed durlng Lhe llrsL World
War. ueuLsche 8ank currenLly offers lLs servlces ln over 30 counLrles. lLs servlces Lo reLall cllenLs lnclude:
(1) ueuLsche 8ank's uebL CaplLal MarkeLs (uCM) group. 1hls provldes corporaLlons, flnanclal lnsLlLuLlons, and
governmenLs wlLh flnanclal producLs and servlces Lhrough Lhe debL caplLal markeLs, forelgn exchange and
derlvaLlves.
(2) 8lsk managemenL producLs are provlded Lhrough derlvaLlves LhaL manage Lhe rlsks surroundlng exchange
raLes, lnLeresL raLes, credlL defaulL swaps and sLrucLured producLs.
(3) llxed lncome markeLs and sLrucLures and Lrades governmenL and corporaLe bonds, sLrucLured credlL
lnsLrumenLs, securlLlzed producLs.
(4) Arranglng and Lradlng of asseL backed debL lncludlng resldenLlal morLgage-backed securlLles (8M8S),
commerclal morLgage-backed securlLles (CM8S), and synLheLlc asseL backed securlLles (A8S), as well as
collaLerallsed debL obllgaLlon (CuC) producLs.
ueuLsche 8ank has been acLlve ln Lhe uk reLall banklng markeL Lhrough Lhe followlng acLlvlLy
(1) arranged M1n lssues for Lhe Clydesdale 8ank parenL group's M1n programme.
(2) acLed as a [olnL lead arranger for Abbey's covered bond and 8M8S programmes and Alllance and LelcesLer's
covered bond programme.
(3) acLed as a M1n dealer for Lhe Co-operaLlve 8ank, 8radford & 8lngley, and a 8M8S dealer for Abbey and
P8CS.

I&-.>+#HhLLp://www.db.com/en/conLenL/company/our_company.hLm?ghpnavlgaLlon=LnC_Cur_Company,
hLLp://www.db.com/en/conLenL/company/corporaLe_and_lnvesLmenL_bank.hLm,
hLLp://www.corporaLeflnance.db.com/home/lndex.php?ld=lndex, hLLp://www.euroweek.com/ArLlcle.aspx?ArLlclelu=2062846 (Accessed:
11/03/2009)




23
S.3. Internat|ona| asset managers and Uk reta|| bank|ng
1he geographlcal orlglns of asseL managers LhaL have Lhe capablllLy Lo provlde servlces Lo uk reLall
banks cover slx geographlcal areas, as lllusLraLed ln llgure 3.2. 1he uk accounLed for Lhe largesL
number of asseL managers (64.7 per cenL), followed by Lhe uS wlLh 26 flrms (22.4 per cenL) and
conLlnenLal Lurope wlLh 11 asseL managemenL flrms (9.3 per cenL).Ceographlcal areas LhaL accounL
for smaller numbers of asseL managemenL flrms LhaL can poLenLlally supply servlces Lo uk reLall
banks lnclude, !apan, wlLh Lwo flrms (1.7 per cenL), AusLralla wlLh one flrm (0.9 per cenL) and Afrlca,
wlLh one flrm (0.9 per cenL).
I|gure S.2: 1he geographlcal orlglns of AsseL Managers operaLlng wlLhln Lhe uk

ln conLrasL Lo small number of lnvesLmenL banks offerlng servlces Lo uk reLall banks, Lhe larger
number of relaLlvely small (ln employmenL Lerms) asseL managers may be explalned by Lhelr
dlslnLermedlaLed dlsLrlbuLlon model, where small asseL managers can sell Lhelr producLs over Lhe
lnLerneL and ouLsource Lhe accounL managemenL servlces Lhrough Lhlrd-parLy processlng companles
such as 8n? Mellon. 1hese developmenLs have lowered Lhe enLry cosLs Lo new asseL managers LhaL
have begun Lo operaLe small, nlche lnvesLmenL funds. 1hls buslness model ls lmporLanL ln
undersLandlng Lhe lmpllcaLlons of Lhe global flnanclal crlsls for reLall flnance ln Lhe uk (see secLlon 6
below). Pavlng esLabllshed Lhe number and Lype of wholesale flrms offerlng servlces Lo reLall flrms
ln Lhe uk, we now conslder Lhe Lypes of servlces offered LhaL acL as Lhe llnkages wlLhln Lhe
wholesale-reLall lnLerface.


Afrlca
AusLralasla
!apan
Lurope
uS
uk



26
S.4 Investment bank|ng serv|ces and reta|| bank|ng |n the Uk
ln order Lo undersLand Lhe lmpllcaLlons of Lhe global flnanclal crlsls for reLall flnance and Lhe role of
wholesale flnanclal flrms wlLhln Lhls lL ls vlLal Lo undersLand Lhe naLure of Lhe relaLlonshlp beLween
Lhese dlfferenL flnanclal flrms. Comblnlng lnformaLlon produced Lhrough our daLabases wlLh
corporaLe publlcaLlons, speclallsL flnanclal news channels and relevanL research reporLs (e.g. from
llSL London) Lhe flnanclal producLs and servlces sold Lo uk reLall banks by lnvesLmenL banks can be
dlvlded lnLo Lhree Lypes as shown ln llgure 3.3. ln more deLall, Lhese paLhways beLween reLall and
lnvesLmenL banklng are:
(1) Debt cap|ta|: uebL caplLal servlces lnclude Lhe lssuance, sLrucLurlng and sale of debL securlLles
such as covered bonds, 8M8S (resldenLlal morLgage backed securlLles), M1ns (medlum Lerm noLes),
flxed lncome noLes, and more general debL caplLal servlces and sLrucLured flnance servlces.
AddlLlonal servlces lnclude corporaLe LrusLee servlces, whlch are requlred Lo malnLaln subsldlary
companles, known as speclal purpose vehlcles, LhaL are frequenLly requlred ln Lhe sLrucLurlng of
Lhese flnanclal LransacLlons. lor example, norLhern 8ock lssued lLs 8M8S noLes Lhrough a vehlcle
known as Lhe CranlLe MasLerLrusL (WalnwrlghL, 2009). 1hese debL lssue servlces became popular
amongsL uk reLall banks prlor Lo Lhe credlL crunch, as Lhey enabled uk reLall banks Lo successfully
lncrease Lhelr consumer lendlng, proflLablllLy and dlvldend repaymenLs.
(2) Lqu|ty ra|s|ng and management serv|ces: LqulLy ralslng and managemenL servlces provlded by
lnvesLmenL banks lnclude servlces relaLlng Lo Lhe shares and ownershlp sLrucLures of companles, ln
parLlcular ln Lhe case of Lhls reporL, reLall banks and flnanclal servlce provlders. 1hese servlces also
lnvolve ralslng equlLy by converLlng a muLually owned flnanclal organlsaLlon, such as a bulldlng
socleLy, lnLo a publlc llmlLed company Lhrough an lnlLlal ubllc Cfferlng (lC), whlch was common ln
Lhe 1990s when a many of Lhe uk's larger bulldlng socleLles demerged Lo become reLall banks
(Marshall%+$%(*, 2000). lCs can also be execuLed ln a demerger where a unlL of a reLall bank or
flnanclal organlsaLlon becomes a separaLe company ln lLs own rlghL, alLhough lLs equlLy may Lhen be
sold Lo anoLher flnanclal company. AddlLlonal caplLal can be ralsed Lhrough rlghLs lssues where
addlLlonal shares are lssued by a reLall bank Lo ralse money. Servlces surroundlng equlLy also lnclude
Lhe managemenL of Lhe equlLy and Lhe Lransference of Lhe ownershlp of reLall banks Lhough
mergers and acqulslLlons or managemenL buy-ouLs.

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;.(-!,%6!3.95.6.):!
*,%,/'*'%)!
!
;'),.3!+,%-.%/!



28
!"#$!%&'(!)!*&+,&-&./!012134042.5!lnvesLmenL banks offer producLs and servlces LhaL can be used Lo
manage rlsk and llquldlLy for reLall banks. 1hese servlces lnclude derlvaLlves, money markeL
producLs, forelgn exchange and Lreasury managemenL servlces LhaL can be used Lo manage and
offseL dlfferenL Lypes of rlsk such as lnLeresL raLe rlsk - where an lnsLlLuLlon has lssued morLgages on
a seL raLe of lnLeresL, buL where Lhe reLall bank funds Lhose morLgages wlLh money LhaL has a
'floaLlng' lnLeresL raLe. lnLeresL raLe rlsk can cause a deflclL Lo emerge beLween Lhe Lwo Lrades of
lnLeresL produclng a loss for Lhe lender, buL Lhls can be managed Lhrough swaps and derlvaLlves.
Slmllarly, exchange raLe rlsk concerns Lhe deflclL LhaL can grow beLween movemenLs ln forelgn
currency raLes. lor example, lf a reLall bank borrows caplLal ln a forelgn currency and uses lL Lo lend
ln sLerllng, currency movemenLs can produce a deflclL, a rlsk LhaL can be hedged Lhrough derlvaLlves
and swaps. Money managemenL servlces and Lreasury servlces offered by lnvesLmenL banks also
provlde llquldlLy Lo reLall banks and can be used Lo manage any surpluses LhaL a smaller reLall bank
may have.

67879!:;4!&0<=>.12.!>=*4!=?!'4@,>&.&'1.&=2!&2!';1<&23!.;4!&2.4>?1@4!A4.B442!&2C4'.042.!A12('!12-!
>4.1&*!A12('!&2!.;4!DE!
1he relaLlve frequency wlLh whlch Lhe 47 lnvesLmenL banks operaLlng ln London lncluded ln Lhls
sLudy offered each of Lhese groups of servlces ls shown ln 1able 3.1. 1hls shows Lhe relaLlve
lmporLance of debL caplLal servlces ln general and processes of securlLlsaLlon ln parLlcular. As flgure
3.4 demonsLraLes, uS lnvesLmenL banks had a parLlcularly sLrong presence ln securlLlsaLlon and
relaLed debL caplLal ralslng servlces such as flxed lncome lssuance.
SecurlLlsaLlon can be deflned as:
a process whlch allows lenders Lo converL porLfollos of credlL cards, consumer loans and car
loans lnLo bonds. 1hese are known as asseL-backed securlLles (A8S) where Lhe yleld on Lhe
bond ls derlved from Lhe underlylng asseLs (Langley, 2006). 8onds backed by resldenLlal
morLgages are known as resldenLlal morLgage back securlLles (8M8S). 1he flnanclal reLurns
from Lhe asseL pool are noL dlvlded equally beLween Lhe bonds LhaL have been lssued, buL
are flnanclal englneered Lo produce a range of dlfferenL bonds." (WalnwrlghL 2009: 3)
1he advanLage of securlLlsaLlon for reLall provlders lles ln lLs ablllLy Lo remove hlgh-rlsk
asseLs, such as sub-prlme morLgages from lenders' balance sheeLs. 1hls allows lenders Lo develop
lncreaslngly rlskler producLs leadlng Lo producLs ln exLreme cases such as nln!A morLgages ln Lhe uS
sold Lo consumers ln Lhe uS wlLh 'no-lncome-no [obs-or asseLs'. 1he developmenL of securlLlsaLlon
prlor Lo Lhe crlsls was also fuelled by a broader benlgn macro-economlc envlronmenL assoclaLed



29
wlLh low lnLeresL raLes. LmblemaLlc ln Lhls regard ls norLhern 8ock's buslness model LhaL funded 73
per cenL of lLs buslness Lhrough Lhe caplLal markeLs (lSA, 2008). lndeed, prlor Lo Lhe crlsls,
regulaLory changes were made Lo deepen Lhe relaLlonshlp beLween demuLuallsed bulldlng socleLles
and Lhe caplLal markeLs.
Cf parLlcularly slgnlflcance ln Lhls respecL ls Lhe 8ulldlng SocleLles (lundlng) and MuLual
SocleLles (1ransfer) AcL 2007. 1hls AcL was lnLroduced Lo enable muLual organlsaLlons llke bulldlng
socleLles, LhaL have hlsLorlcally relled on cusLomer deposlLs Lo fund Lhelr buslness, Lo borrow more
LhaL 30 per cenL of Lhelr fundlng from Lhe lnLernaLlonal caplLal markeLs.

:1A*4!6795 lrequency of offerlng dlfferenL Lypes of flnanclal servlces Lo reLall banks by lnvesLmenL
banks ln London!
F4A.!@1<&.1*! G+,&./!>1&'&23!12-!012134042.! %&'(!)!*&+,&-&./!012134042.!
H>=-,@.! I>4+,42@/! !J! H>=-,@.! I>4+,42@/! J! H>=-,@.! I>4+,42@/!
J!
Covered bond 3 1
ManagemenL
buyouL 3 1
1reasury
managemenL 3 1
SLrucLured
flnance 3 1 8lghLs lssue 19 6.3
Money
managemenL 13 3.1
CorporaLe
1rusLee 4 1.4 8rokerage 22 7.3
lorelgn
exchange 21 7.2
Covered bond
Lead arranger 3 1.7 lC 33 11.9 uerlvaLlves 30 10.2
Medlum Lerm
noLe lead
arranger 3 1.7
Mergers and
acqulsLlons 38 13
SecurlLlsaLlon
uealer 7 2.4
llxed lncome
lead arranger 9 3.1
Medlum Lerm
noLe dealer 11 3.8
uebL caplLal
ralslng 24 8.2
SecurlLlsaLlon
Lead Arranger 30 10.2
!
!
!
!
!
!
!



30
I&3,>4!6785!!8elaLlve dlsLrlbuLlon of uS lnvesLmenL bank servlces Lo reLall flnance ln London!
!
urawlng on our daLabase, llgure 3.3 represenLs a Lyplcal seL of relaLlonshlps beLween reLall and
lnvesLmenL banks Lo dlsLrlbuLe debL securlLles. 1he dlagram lllusLraLes how debL securlLles are
lssued and dlsLrlbuLed Lo lnvesLors across dlfferenL global flnanclal cenLres Lhrough a neLwork of
lnvesLmenL banks. llrsL, Lhe uk reLall bank wlll approach an lnvesLmenL bank based ln Lhe uk, Lo
sLrucLure Lhe lssuance of debL securlLles such as covered bonds or 8M8S noLes. 1he reLall bank and
lnvesLmenL bank wlll Lhen conLacL dlfferenL lnvesLmenL banks LhaL wlll help Lhem Lo dlsLrlbuLe Lhe
debL securlLles globally drawlng on Lhelr experlence of englneerlng flnanclal LransacLlons Lo meeL Lhe
demands of lnLernaLlonal lnvesLors (WalnwrlghL, 2009).
lor example, Lhe Clydesdale 8ank, a subsldlary of lLs AusLrallan parenL group, has launched a
global M1n programme. AlLhough ueuLsche 8ank arranged Lhe sLrucLurlng of Lhe Clydesdale 8ank
LransacLlon, lnvesLmenL banks orlglnaLlng from Lhe uk, uS, AusLrallan, ConLlnenLal Lurope and
!apan, where also used Lo dlsLrlbuLe Lhe noLes Lo lnLernaLlonal lnvesLors. CLher examples lnclude
Alllance & LelcesLer's covered bond programme whlch dlsLrlbuLed lLs bonds Lhrough Luropean
lnvesLmenL banks such as 8n arlbas, ueuLsche 8ank, CredlL Sulsse and uk lnvesLmenL banks such
as 8arclays CaplLal, PS8C, 88S - and prlor Lo lLs demlse - uS lnvesLmenL bank Lehman 8roLhers.
1herefore, whllsL London remalns an lmporLanL servlce provlder for uk reLall banks Lhrough Lhe
producLs and servlces provlded by lnLernaLlonal lnvesLmenL banks, lL ls parL of a broader, spaLlally
conLlngenL dlsLrlbuLlon neLwork LhaL places uk reLall bank debL caplLal securlLles lnLo dlfferenL
counLrles and Lhelr lnvesLors.
0 2 4 6 8 10 12 14
Covered bond uealer
SLrucLured nance
CorporaLe 1rusLee
Covered bond LA
M1n LA
Securlusauon uealer
llxed lncome LA
M1n uealer
uebL caplLal ralslng
Securlusauon LA
8lghLs lssue
8rokerage
lC
M&A
1reasury managemenL
Money managemenL
lorelgn exchange
uerlvauves
!
!
!
"#!
!"#$%&'()(*'+,-.'/0%$10$%"2#'324'4"/0%"5$0"62'
!
!
!
!
!

32

1he lmporLance of geographlcal dlsLrlbuLlon ls lllusLraLed by llgure 3.6, whlch shows an example of
how Lhe 8M8S noLes lssued by uk reLall banks were denomlnaLed ln dlfferenL currencles. 1he
volumes of bonds - and Lhe currencles Lhey are lssued ln- whlch varled beLween 2002-2007 for
P8CS' ermanenL fundlng programme, denomlnaLed ln Luros, uollars and sLerllng are shown
hlghllghLlng Lhe lmporLance of a mulLl-lnvesLmenL bank dlsLrlbuLlon neLwork.

I|gure S.6: 1he value of 8M8S lssuance from P8CS's ermanenL fundlng programme, by currency

5ootce. hLLp://www.lloydsbanklnggroup.com/lnvesLors/debL_lnvesLors/permanenL.asp, lasL
accessed 19/11/09

S.S Asset management serv|ces offered to Uk reta|| banks by geography and emp|oyee s|ze
Along wlLh Lhe uS and !apan, Lhe uk ls one of Lhe largesL fund managemenL markeLs ln Lhe world
and alLhough Lhe lnLernaLlonal scope of asseL managemenL makes lL compllcaLed Lo esLlmaLe, uk
asseL managemenL funds were valued aL 4.1 Lrllllon aL Lhe end of 2007 (llSL, 2008b). London,
Clasgow and Ldlnburgh are Lhe key managemenL locaLlons, and Lhe slze and sophlsLlcaLlon of Lhe
asseL managemenL lndusLry means LhaL Lhere are ample opporLunlLles for reLall banks Lo offer a
0 1000 2000 3000 4000 3000 6000 7000
2002
2003
2004
2003
2006
2007
(M||||ons)
CAn $
$

t

33

dlverse range of funds Lo Lhelr consumers. 1he full range of asseL class producLs offered by Lhe asseL
managers lncluded ln Lhls research pro[ecL are lllusLraLed ln llgure 3.7.
I|gure S.7: AsseL classes offered Lo reLall lnvesLors by uk asseL managers

1hls relaLlonshlp beLween reLall banks and asseL managers has been shaped by a serles of
key changes over Lhe pasL Lhree decades. llrsL, regulaLory changes ln 2004 LhaL reversed Lhe rules of
polarlsaLlon have arguably provlded reLall consumers wlLh access Lo a wlder range of lnvesLmenL
producLs Lhrough Lhelr reLall banks - managed by asseL managemenL flrms - whlch has also lncreased
Lhe denslLy of relaLlonshlps beLween Lhe wholesale-reLall flnanclal lnLerfaces.
lnlLlal concerns surroundlng Lhe lmplemenLaLlon of Lhls depolarlsaLlon cenLred on Lhe
suggesLlon LhaL reLall banks may noL wanL Lo offer a dlverse range of flnanclal producLs from
exLernal provlders as Lhey would compeLe wlLh Lhelr own producL ranges. 1haL sald, depolarlsaLlon
has had a mlxed effecL. CurrenLly, Lhe reLall banks we sLudled elLher offered a wlde range of
producLs or remaln Lled Lo one or Lwo asseL managemenL flrms for Lhelr producLs, ln addlLlon Lo
offerlng Lhelr own savlngs ranges and lnvesLmenL producLs. lor example, PS8C has developed a wlde
range of mulLl-Lled producLs Lo offer Lo Lhelr consumers whlch lnclude funds managed by Lhelr own
asseL managemenL arm, buL also offers funds operaLed by several exLernal asseL managemenL
companles. AlLhough reLall banks have Lhe freedom Lo offer as many funds from dlfferenL provlders
as Lhey wlsh, PS8C has llmlLed lLs selecLlon of mulLl-Lled agenLs as lL fears LhaL Loo many producLs
0 20 40 60 80 100 120
Small Cap lund
Cash ManagemenL
uevelopmenL lund
venLure CaplLal
CommodlLy lund
Currency lund
SLrucLured lund
CLher
LLhlcal lund
Speclal SlLuauons lund
Mulu-Manger lund
CovernmenL uebL lund
rlvaLe LqulLy lund
Cash lund
8espoke
Pedge lund
8eal LsLaLe lund
CorporaLe uebL lund
LqulLy lunds

34

could confuse consumers
3
. vlgneLLes 3 and 6 provlde furLher examples of Lhese relaLlonshlps
beLween asseL managers and reLall flnance for Lwo conLrasLlng asseL managers: one a mulLlnaLlonal
generallsL (Legal and Ceneral) and one a speclallsL bouLlque.
V|gnette S: Lega| & Genera|
Legal & Ceneral was esLabllshed ln 1836 by slx lawyers. lL has subsequenLly grown Lo servlce over
6.3 mllllon cusLomers and has offlces ln Lhe uk, uSA, lrance, Lhe neLherlands and Cermany. lLs
producLs lnclude lSAs, unlL LrusLs, penslon funds, general lnsurance and proLecLlon producLs and lL
has supplled Lhese lnvesLmenL producLs and lnsurance Lo reLall banks, bulldlng socleLles and reLall
servlce provlders lncludlng:
(1) ln 1993 Legal & Ceneral began Lo supply Lhe Woolwlch 8ulldlng SocleLy wlLh lnsurance pollcles.
(2) ln 2001, Lhe uk markeL sLlll used a polarlsed dlsLrlbuLlon model and Alllance & LelcesLer began a
sLraLeglc parLnershlp wlLh Legal & Ceneral, such consumers could access long-Lerm savlng and
lnvesLmenL producLs Lhrough lLs branch neLworks.
(3) ln 2003 Legal & Ceneral became Lhe provlder of general lnsurance for cusLomers of Lhe 8ank of
lreland and naLlonal AusLralla 8anks' Clydesdale, ?orkshlre and norLhern 8anks, llfe assurance for
Lhe norwlch & eLerborough 8ulldlng SocleLy's cusLomers, and morLgage lnsurance for 8lrmlngham
Mldshlres cusLomers.
(4) ln 2004 Legal & Ceneral became Lhe sole provlder of lnvesLmenL and proLecLlon producLs Lo
8radford & 8lngley's cusLomers, Lhe sole suppller of household lnsurance Lo Chelsea 8ulldlng SocleLy
cusLomers, and llfe assurance Lhrough Salnsbury's.
CurrenL servlces aL Lhe wholesale-reLall lnLerface lnclude: lSA wrapped Lax-efflclenL unlL LrusLs
lncludlng lndex Lrackers - followlng Lhe uk sLock markeL, oLher reglons and markeL secLors, acLlvely
managed equlLy funds, eLhlcal equlLy funds, lncome funds - backed by corporaLe and governmenL
bonds, cash funds, and mulLlmanager funds whlch lnvesL ln a range of dlfferenL Cpen ended
lnvesLmenL companles (CLlCs).
5ootces. hLLp://www.legalandgeneralgroup.com/abouL-us/abouL-us.cfm,
hLLp://www.legalandgeneralgroup.com/abouL-us/company-hlsLory.cfm,
hLLp://www.legalandgeneralgroup.com/abouL-us/mllesLones-1960-1980.cfm,
hLLp://www.legalandgeneralgroup.com/abouL-us/mllesLones-1990.cfm,
hLLp://www.legalandgeneralgroup.com/abouL-us/mllesLones-2000.cfm (all accessed: 12/03/09)

3
hLLp://www.Llmesonllne.co.uk/Lol/money/arLlcle496304.ece (Accessed 13/03/09)

33

V|gnette 6: Iam||y Investment Management, spec|a||st fund management
lamlly lnvesLmenLs, a muLual based ln 8rlghLon, ls over 30 years old and lssued lLs flrsL pollcy ln
1973.lL manages around 1.6 bllllon for over one mllllon members. lL speclallses ln provldlng
affordable and Lax efflclenL savlngs pollcles for famllles ln Lhe uk. lL offers a wlde range of savlngs
and lnvesLmenL producLs, Lax-exempL savlngs bonds, lSAs, unlL LrusLs.
lL has parLlcular experLlse ln Lhe chlldren's savlngs markeL and dlsLrlbuLes lLs Chlld 1rusL lund
Lhrough more hlgh-sLreeL ouLleLs Lhan any oLher provlder lncludlng 8arclays 8ank, 8radford &
8lngley, Clydesdale 8ank, norLhern 8ank, ?orkshlre 8ank, and bulldlng socleLles such as Lhe SklpLon
8ulldlng SocleLy and CovenLry 8ulldlng SocleLy as well as oLher flnanclal provlders such as Lhe osL
Cfflce and Salnsbury's 8ank. lL also operaLes Lhe Abbey Chlld 1rusL lund whlch lnvesLs ln a balanced
global fund managed by SanLander AsseL ManagemenL.
lamlly's producLs for chlldren are:
(1) 1he speclallsL Chlld 1rusL lund almed aL chlldren born afLer 1
sL
SepLember 2002 who recelve a
governmenL voucher Lo be redeemed Lhrough Lhe fund. lamlly members can also conLrlbuLe up Lo
1200 a year unLll Lhe chlld ls 18
(2) 1he Chlldren's unlL 1rusL allows a lump sum of 230 pound Lo be lnvesLed ln Lhe fund, or 30 per
monLh by famlly members such as grandparenLs.
(3) A longer Lerm !unlor 8ond LhaL enables an adulL Lo save beLween 13-23 per monLh for a perlod
of 10-23 years.
1hese Lhree producLs lnvesL ln equlLles ln an aLLempL Lo maxlmlse Lhe growLh of Lhe funds' value,
whlch also lncludes an eLhlcal opLlon whlch avolds lnvesLmenLs ln alcohol or Lobacco.
5ootces. hLLp://www.famllylnvesLmenLs.co.uk/abouL.aspx,
hLLp://www.famllylnvesLmenLs.co.uk/chlldLrusLfund.aspx,
hLLp://www.famllylnvesLmenLs.co.uk/parLners.aspx (all accessed: 12/03/09)

1hls depolarlsed asseL managemenL landscape has culmlnaLed ln Lhe developmenL of Lwo
dlfferenL Lypes of relaLlonshlps beLween reLall banks and asseL managers. 1he flrsL has been Lhe
developmenL of fund supermarkeLs by reLall banks such as naLwesL and PS8C LhaL provlde reLall
lnvesLors wlLh access Lo funds offered by exLernal asseL managers. 1hls buslness model allows
smaller reLall banks LhaL do noL have global coverage Lo enllsL Lhe experLlse of exLernal asseL

36

managers Lo dlverslfy Lhe range of Lhe reLall bank's funds LhaL are avallable Lo consumers. lor
example, Lhe CooperaLlve bank has an asseL managemenL deparLmenL, based ln ManchesLer, whlch
focuses on developlng uk lnvesLmenL funds for lLs consumers. Powever, Lhe bank has also soughL Lo
offer more dlverslfled equlLy producLs Lo lLs consumers Lhrough funds derlvlng Lhelr reLurns from
equlLles ln Lurope and Lhe unlLed SLaLes. lL also supplles lLs consumers wlLh funds managed by u8S.
llgure 3.8 lllusLraLes Lhls Lype of relaLlonshlp beLween uk reLall banks and asseL managers. lL
demonsLraLes how Lhese relaLlonshlps enable a smaller uk reLall bank such as Lhe CooperaLlve 8ank
Lo access Lhe experLlse of a global fund manager's research deparLmenLs and brokerage arms ln
dlfferenL flnanclal cenLres around Lhe world, wlLhouL Lhe need for Lhe bank Lo consLrucL Lhelr own
asseL managemenL Leams ln Lhe uk.
I|gure S.8: neLworks of reLall consumer asseL managemenL


1he second relaLlonshlp beLween reLall banks and asseL managers LhaL has developed
followlng depolarlsaLlon ls lllusLraLed ln llgure 3.9 below. 1hls model has become more prevalenL
and ls based on Lhe emergence of fund of funds and mulLl-manager funds. 8oLh of Lhese Lypes of
funds are based on Lhe premlse LhaL noL all lnvesLmenL flrms wlll be successful all of Lhe Llme, ln all
asseL classes. lunds of funds alm Lo spread Lhe rlsk of fallure by fund managers, whlch ln Lheory
lncreases Lhe llkellhood of hlgh reLurns for lnvesLors. 1he ldea LhaL underlles Lhe fund of funds ls Lo
generaLe a fund LhaL lnvesLs ln Lhe funds of oLher lnvesLmenL flrms and ln so dolng, Lakes advanLage
of Lhe lnvesLmenL experLlse of oLher lnvesLmenL managers. MulLl-manager funds dlffer from funds of
funds ln LhaL an asseL manager wlll choose fund managers worklng ln dlfferenL companles LhaL Lhey
belleve Lo be Lhe besL ln Lhe lndusLry. Lach manager ls Lhen provlded wlLh a speclflc mandaLe or
allocaLlon of funds Lo manage, whlch ls declded by a lead asseL managemenL flrm. lor example, 88S
and naLwesL provlde mulLl-manager funds Lhrough Close 8roLhers lnvesLmenLs and Avlva (see
vlgneLLes 7 and 8). Close 8roLhers provlde an lndependenL servlce LhaL monlLors Lhe performance of
Lhe lndlvldual fund managers chosen by Avlva whllsL Avlva handplcks Lhe exLernal fund managers

37

from dlfferenL companles Lo manage parL of a fund. lunds of funds and MulLl-manger funds have
lncreased Lhe dlverslLy of Lhe relaLlonshlps beLween asseL managers and Lhelr relaLlonshlps wlLh
reLall banks. Whlle reLall banks were llmlLed Lo one asseL managemenL flrm under polarlsaLlon, Lhey
now draw upon Lhe experLlse of dlfferenL asseL managers Lo manage bespoke funds, whlch has
produced compllcaLed, lnLernaLlonal neLworks of asseL managemenL companles and reLall banks.

I|gure S.9: neLworks of mulLl-manager asseL managemenL



V|gnette 7: C|ose brothers
1he Close 8roLhers Croup ls an lndependenL lnvesLmenL banklng group whlch was founded ln Lhe
ClLy of London ln 1878, whose maln acLlvlLles lnclude asseL managemenL, corporaLe flnance, markeL
maklng and banklng.
Close 8roLhers' lnvesLmenL arm provldes a range of flnanclal producLs for flnanclal lnsLlLuLlons,
lnLermedlarles and prlvaLe lnvesLors. lL lnvesLs ln asseL classes LhaL lnclude properLy, manager of
manager funds and equlLles from Lhe alLernaLlve lnvesLmenL markeL.
Close provldes segregaLed funds for flnanclal lnsLlLuLlons ln such as fund and penslon fund managers
whlch lnclude properLy, sLrucLured producLs, flxed lncome and mulLl-manager funds. 1he Close
lnvesLmenLs Croup also coordlnaLes mulLl-manger funds, where Close oversees Lhe performance of
Lhe asseL managers LhaL conLrlbuLe Lo 88S and naLWesL's consumer funds.
5ootces.
hLLp://www.closeam.com/Pome/lnsLlLuLlons/lnvesLmenL_managemenL/,hLLp://www.closeam.com/Pome/lnsLlLuLlons/lnvesLmenL_mana
gemenL/MulLl_manager_advlsory/
,hLLp://www.closeam.com/Pome/lnsLlLuLlons/lnvesLmenL_managemenL/ulscreLlonary_porLfollo_managemenL/ ,
hLLp://www.closeam.com/Pome/AbouL_Close/PlsLory/ (all accessed: 21/03/09)

38

V|gnette 8: Uk Asset Management: Av|va, Natwest, k8S and the mu|t|-managers
Avlva lnvesLors ls a global asseL managemenL company wlLh asseLs under managemenL ln excess of
236 bllllon, whose cllenLs lnvolve Lhe flnanclal lnsLlLuLlons and lndlvlduals. lL employs 1,300 people,
lncludlng 400 lnvesLmenL professlonals, ln 20 locaLlons around Lhe world.
Avlva's buslness ln Lhe uk began ln 1971 wlLh Lhe formaLlon of Ceoffrey Morley & arLners, whlch
was acqulred by Commerclal unlon, an lnsurer ln 1990. Commerclal unlon merged wlLh Lhe lnsurer,
Ceneral AccldenL, creaLlng CCu LhaL ln Lurn merged wlLh norwlch unlon ln 2000. 1he asseL
managemenL company Morley lund ManagemenL merged wlLh norwlch unlon lnvesLmenL
ManagemenL ln 2000, before belng renamed as Avlva lnvesLors Clobal Servlces ln 2008.
Avlva's funds lnvesL ln equlLles, corporaLe and governmenL bonds, cash real esLaLe, emerglng markeL
equlLles and alLernaLlve asseL classes and have acLed as advlsors on prlvaLe equlLy funds as well as
launchlng a fund-of-fund capablllLy.
Avlva also provldes a range of mulLl-manager funds, susLalnable funds and lndex Lracklng funds.
Avlva works wlLh Close 8roLhers as mulLl-manager fund coordlnaLors for naLWesL and 88S'
consumer funds. naLwesL and 88S offer slx funds Lo lLs cusLomers LhaL are manage for lL by Avlva
and Close broLhers.
1hese lnclude a CauLlous CrowLh lund, a WlLh-roflL lund, a WlLh-roflL lncome lund, lncome lund,
8alanced CrowLh fund and AdvenLurous CrowLh lund.
1he funds provlde exposure Lo equlLles, corporaLe bonds, governmenL bonds, cash and properLy
and offer a cauLlous rlsk proflle Lhrough Lo an advenLurous rlsk proflle.
Avlva provldes Lhe asseL allocaLlon lnformaLlon and Close 8roLhers lndependenLly monlLor Lhe
performance of Lhe dlfferenL lnvesLmenL managers appolnLed by Avlva Lo ensure LhaL Lhey meeL seL
LargeLs and ouLperform Lhe markeL.
5ootces. hLLp://www.naLwesL.com/personal/lnvesLmenLs/g1/lnvesLmenLs-for-everyone/managed-lnvesLmenLs/cauLlous-
growLh-fund.ashx, hLLp://www.naLwesL.com/personal/lnvesLmenLs/g1/lnvesLmenLs-for-everyone/managed-
lnvesLmenLs.ashx, hLLp://www.rbs.co.uk/personal/lnvesLmenLs/g1/lnvesLmenLs-for-everyone/managed-lnvesLmenLs.ashx,
hLLp://www.avlva.com/abouL-us/group-aL-a-glance/, hLLp://www.avlva.com/abouL-us/avlva-worldwlde/uk/ (All accessed:
21/03/09)

39

6. kesearch I|nd|ngs 2: Imp||cat|ons for the who|esa|e-reta||
|nterface |n the Uk |n the wake of the g|oba| f|nanc|a| cr|s|s
1hls secLlon beglns by brlefly documenLlng Lhe unfoldlng of Lhe global flnanclal crlsls as lL relaLes Lo
Lhe uk wholesale-reLall lnLerface. We Lhen conslder Lhe opporLunlLles and LhreaLs Lhls poses Lo Lhe
relaLlonshlp beLween wholesale and reLall flrms ln Lhe uk.

6.1 1he g|oba| f|nanc|a| cr|s|s and who|esa|e-reta|| f|nance |n the Uk
1he orlglns of Lhe global flnanclal crlsls can be Lraced back Lo Lhe securlLlsed wholesale-flnance
lnLerface ln Lhe uS LhaL faclllLaLed Lhe developmenL of a subprlme morLgage markeL. 1hls markeL
offered home loans Lo cusLomers wlLh adverse or unusual credlL hlsLorles, Lhereby slgnlflcanLly
lncreaslng Lhe exLenL of flnanclal lncluslon wlLhln Lhe uS. 1hls markeL became proflLable because
Lhe hlgher raLes of defaulL were offseL by hlgh lnLeresL raLes and penalLy fees. SecurlLlsaLlon was
lmporLanL ln Lhe developmenL of Lhls markeL because lL removed Lhe credlL-rlsk of morLgages off
lenders' balance sheeLs.
1hls markeL began Lo suffer when Lhe wlder macro-economlc envlronmenL ln whlch lL had
developed began Lo change ln 2004 when Lhe uS lederal 8eserve began Lo lncrease lnLeresL raLes.
1hls lncreased Lhe defaulL raLes on sub-prlme morLgages as lndlvlduals were unable Lo make Lhelr
lncreased repaymenLs. ConsequenLly, lenders were unable Lo repay resldenLlal morLgage backed
securlLles lnvesLors, who ln Lurn also began Lo experlence slgnlflcanL losses. 1hey Lhen began Lo llmlL
Lhelr purchase of 8M8S bonds from morLgage lenders, effecLlvely closlng Lhe markeL for 8M8S. ln
!une 2007, Lhe uS bank 8ear SLerns revealed LhaL lL was experlenclng heavy losses from 8M8S bonds
and was subsequenLly declared bankrupL Lrlggerlng uncerLalnLy and volaLlllLy ln flnanclal markeLs
more generally.
1he reducLlon ln Lhe llquldlLy of Lhe 8M8S markeL caused slgnlflcanL problems for reLall
banks ln Lhe uk, parLlcularly demuLuallsed bulldlng socleLles LhaL had relled on securlLlsaLlon Lo
access exLernal fundlng Lo make loans as opposed Lo relylng on Lhelr deposlL base. 1he flrsL hlgh
proflle casualLy was Lhe norLhern 8ock LhaL was naLlonallsed on 22 november 2007. SubsequenLly,
8radford and 8lngley was naLlonallsed ln SepLember 2008 wlLh lLs branch neLwork belng sold Lo
8anco SanLander. 1he uk CovernmenL boughL preference shared ln 8oyal 8ank of ScoLland and
P8CS and Lloyds were merged Lo form Lloyds 8anklng Croup. 1hese organlsaLlonal changes have

40

been accompanled by CovernmenL lnLervenLlons almed aL lmproved access Lo caplLal for reLall
banks, noLably Lhe ball-ouL packages.
uesplLe Lhese changes, confldence and llquldlLy ln reLall markeLs remalns fraglle, wlLnessed
by Lhe only modesL upLurn ln morLgage lendlng. Meanwhlle, confldence ln Lhe wholesale slde was
furLher shaken by Lhe collapse of Lehman 8roLhers ln Lhe uS ln SepLember 2008. As a resulL,
lnvesLmenL banks have announced a conLlnulng programme of redundancles and Lakeover
programmes, parLlcularly wlLh reLall banks, ln an efforL Lo repalr Lhelr balance sheeLs. WhllsL lL ls
dlfflculL Lo predlcL Lhe lmpllcaLlons of Lhese developmenL for Lhe fuLure of Lhe wholesale-reLall
lnLerface ln Lhe uk ln Lhe fuLure, Lhe Lhree LheoreLlcal bodles of work ouLllned earller on
pollLlcal/regulaLory envlronmenLs, flnanclallzaLlon and flnanclal excluslon provlde a valuable LoolklL
wlLh whlch Lo explore posslble lmpacLs. 1he resL of Lhls secLlon Lherefore adopLs a LheoreLlcally
lnformed analysls of Lhe lmpllcaLlons of Lhe global flnanclal crlsls for Lhe wholesale-reLall lnLerface ln
Lhe uk.

6.2 I|nanc|a||zat|on and the |mp||cat|ons for the |nvestment-reta|| bank |nterface |n the Uk.
Work on flnanclallzaLlon emphaslses Lhe ways ln whlch processes such as securlLlsaLlon were
valuable Lo boLh lnvesLmenL banks reLall banks ln Lerms of lmprovlng Lhelr proflLablllLy and
shareholder value. 1he lmmedlaLe ouLlook for lnvesLmenL bank servlces offered Lo reLall banks
based around debL caplLal has been bleak, parLlcularly ln relaLlon Lo securlLlsaLlon. LsLlmaLes
suggesL LhaL securlLlsaLlon lssuance decreased by 79 per cenL from $2,138bn ln 2007 Lo $441bn ln
2008 (llSL 2009b). Moreover, Lhe LSl (2008) has also argued LhaL 8asel ll regulaLlon wlll mean LhaL lL
ls now cheaper for banks Lo reLall morLgages on Lhelr balance sheeLs whlch wlll reduce Lhe need for
reLall banks Lo securlLlze Lhelr morLgages ln Lhe fuLure. lndeed, Lhls reLrenchmenL ln securlLlsaLlon ln
Lhe early sLages of Lhe crlsls resulLed ln a marked decllne ln morLgage lendlng. lor example, Lhe
Councll of MorLgage Lenders reporLed LhaL Lhe volume of loans made for house purchase decllned
48 beLween !anuary 2008 and 2009 wlLh only 23,400 loans belng granLed ln !anuary 2009 (CML,
2009).
Powever, lL ls lmporLanL Lo recognlse LhaL Lhe relaLlonshlp beLween reLall banks and
lnvesLmenL banks had already begun Lo change before Lhe global flnanclal crlsls followlng changes Lo
Lhe morphology of Lhe uk reLall banklng secLor assoclaLed wlLh Lhe developmenL of reLall
conglomeraLes. revlously, smaller reLall banks - wlLhouL lnvesLmenL banklng arms- such as Alllance
& LelcesLer and 8radford & 8lngley would use Lhe skllls and advlce of lnvesLmenL banks Lo lssue

41

M1nS, 8M8S, credlL card securlLlsaLlons and covered bonds. Powever, more recenLly reLall banks
began Lo consolldaLe, underLaklng more sLrucLured flnance acLlvlLles ln house. Larger reLall banks
such as P8CS had begun Lo sLrucLure Lhelr own noLes, as dld larger banks llke Lloyds and 8arclays
(see vlgneLLe 9).

V|gnette 9 n8CS |n-house secur|t|sat|on
ln 1997 1he Pallfax 8ulldlng SocleLy, esLabllshed ln 1863, demuLuallsed Lo become a publlcally
llmlLed company. Pallfax merged wlLh Lhe 8ank of ScoLland, an esLabllshed clearlng bank Lo form
P8CS ln 2001. 8y 2006, P8CS had grown Lo become Lhe uk's largesL morLgage lender, accordlng Lo
Lhe Councll of MorLgage Lenders. ln common wlLh oLher flnanclal conglomeraLes Lhls growLh
lncreaslngly relled on caplLal markeLs Lo fund P8CS' reLall morLgage buslness. 8eflecLlng Lhls, P8CS
seL up Lhree programmes Lo lssue securlLlsed morLgage bonds: ermanenL, Mound and endeford.
8aLher Lhan relylng on lnvesLmenL banks for boLh sLrucLurlng and dlsLrlbuLlon, Lhe flfLh permanenL
lssuance of 8M8S ln 2004was arranged by P8CS's own Lreasury Leam. P8CS used a number of
lnvesLmenL banks Lo acL as lLs dealer and Lo dlsLrlbuLe lLs 8M8S bonds lncludlng Luropean banks
such as ueuLsche 8ank, A8n AM8C, CredlL Sulsse, u8S, and uS lnvesLmenL banks Merrlll Lynch,
ClLlbank and prevlously Lehman 8roLhers.
ln 2009 P8CS merges wlLh Lloyds Lo form Lhe Lloyds group due Lo Lhe fundlng dlfflculLles lL
experlenced due Lo Lhe credlL crunch.
5ootces.hLLp://www.lloydsbanklnggroup.com/medla/pdfs/lnvesLors/2002/ermanenLllnanclng_(no
.1)_rospecLus.pdf,
hLLp://www.lloydsbanklnggroup.com/medla/pdfs/lnvesLors/2004/ermanenL_llnanclng_(no.3)_ro
specLus.pdf, hLLp://news.bbc.co.uk/1/hl/buslness/7622180.sLm (Accessed: 9/11/09), Marshall et ol
2003.f
SlgnlflcanL debaLes are emerglng abouL Lhe deslrablllLy or oLherwlse of Lhls buslness model
ln Lhe wake of Lhe global flnanclal crlsls wlLh crlLlcs calllng for a reLurn Lo narrow reLall banklng ln
whlch reLall banks are separaLed from Lhe more speculaLlve acLlvlLles of lnvesLmenL banks (kay,
2009). AdvocaLes of Lhls approach argue LhaL lL wlll lmprove Lhe approprlaLeness of regulaLlon ln Lhe
uk flnanclal servlces secLor as well as allowlng reLall banks Lo focus on more effecLlvely produclng
lnnovaLlve servlces and channels of dellvery LhaL beLLer meeL consumer demand. Powever, desplLe
such developmenLs poLenLlally slgnalllng a demlse ln wholesale lnvesLmenL banklng ln London, lL ls
lmporLanL Lo remember LhaL ln Lhelr hunL for proflL, personal remuneraLlon and shareholder value,
lnvesLmenL bankers have demonsLraLed slgnlflcanLly ablllLy ln re[uvenaLlng Lhemselves Lhrough new
organlsaLlonal sLrucLures and new flnanclal servlces producLs. lor example, ln Lhe early 2000s Lhere
was ulLlmaLely unfounded concern LhaL lrankfurL would ln effecL overLake London as Lhe pre-

42

emlnenL Luropean wholesale flnanclal servlces cenLre as a resulL of Lhe uk's declslon noL Lo [oln Lhe
Luro (8eaversLock, et ol 2003). Meanwhlle, newly redundanL lnvesLmenL bankers ln Lhe early 2000s
followlng Lhe bursLlng of Lhe doL com bubble dld noL leave Lhe lndusLry buL lnsLead seL up a number
of small, speclallsL corporaLe flnance bouLlques (Pall, 2007).
lndeed, Lhere are already slgns emerglng from Lhe global flnanclal crlsls LhaL polnL Lo Lhe
regeneraLlve capaclLy of flnanclal servlces ln Lhe uk, Lhereby poslng slgnlflcanL quesLlons
surroundlng Lhe effecLlveness of regulaLory responses Lo consLraln Lhe acLlvlLles of flnanclal servlces
flrms. noLable developmenLs spannlng all Lhree of Lhe flnanclal servlces offered by lnvesLmenL
banks Lo reLall banks (debL caplLal and sLrucLure flnance, equlLy ralslng and managemenL servlces,
and rlsk and llquldlLy managemenL ldenLlfled ln secLlon 3.4) lnclude:
Cn Lhe reLall slde, Lhere ls sLlll demand for debL caplLal servlces. Whlle changes Lo
8asel ll regulaLlon may reduce bank's need Lo securlLlze Lhelr asseLs, 8arclays CaplLal
(2006) has predlcLed LhaL more uk reLall banks wlll need Lo securlLlze Lhe rlskler
Lranches of Lhelr exlsLlng securlLlsaLlon reserve funds, Lo reduce Lhelr caplLal
reserves. ln addlLlon, alLhough Lhe demand for securlLlsed producLs has reduced,
llSL esLlmaLes LhaL Lhere wlll sLlll be a $3 Lrllllon demand for credlL LhaL was
prevlously saLlsfled by securlLlsaLlon LhaL wlll need Lo beL meL over Lhe nexL 3 years
(llSL, 2009b). LMl (2004) argues LhaL covered bonds, hlsLorlcally a Luropean
producL, may prove Lo be more popular ln Lhe fuLure ln order Lo meeL Lhls demand.
lnvesLmenL banks have Lhe poLenLlal Lo dlsLrlbuLe such producLs lnLernaLlonally ln
ways LhaL reLall banks currenLly cannoL maLch.
WhllsL llSL (2009a)has recorded negllglble acLlvlLy ln Lhe lC markeL followlng Lhe
global flnanclal crlsls, Lhe demand for equlLy based advlce has lncreased Lhrough a
serles of hlgh proflle rlghLs lssues and M&As. 1hls sLems from consolldaLlon wlLhln
Lhe uk reLall bank secLor and Lhe demand from such banks for exLra caplLal Lo repalr
Lhelr balance sheeLs e.g. durlng Lhe crlsls, P8CS, 88S and 8radford & 8lngley all
announced rlghLs lssues Lo replenlsh Lhelr caplLal reserves enrolllng lnvesLmenL
banks Lo sLrucLure, prlce, underwrlLe and dlsLrlbuLe Lhese share deals,
lnvesLmenL banks have been lnvolved ln organlslng Lhe mergers LhaL have occurred
durlng Lhe crunch as P8CS was purchased by Lloyds and 8anco SanLander purchased
Alllance& LelcesLer and 8radford & 8lngley's branch and savlngs neLwork.
London has, so far, malnLalned and acLually enhanced lLs poslLlon as Lhe leadlng
lnLernaLlonal flnanclal cenLre ln 2009 (Z/?en, 2009). 1able 6.1 lllusLraLes Lhls by

43

comparlng Lhe Z/?en Clobal llnanclal CenLre lndex for 2009 and 2007. 1hls
compeLlLlveness raLlng ls calculaLed for 73 flnanclal cenLres around Lhe globe based
on a number of varlables lncludlng: people and lnLellecLual caplLal, buslness
envlronmenL lncludlng lssues such as regulaLlon and Lax laws, lnfrasLrucLure
lncludlng Lhe cosL and avallablllLy of approprlaLe offlce space as well as LransporL,
and, markeL access lncludlng levels of securlLlzaLlon and Lhe volume and value of
Lradlng passlng Lhrough Lhe cenLre. 1hls daLa, coupled wlLh experlence of prevlous
flnanclal crlsls suggesLs LhaL London has Lhe poLenLlal Lo malnLaln lLs poslLlon as a
leadlng flnanclal cenLre ln Lhe wake of Lhe crlsls, Lhereby offerlng conslderable
opporLunlLles Lo reLall banks ln Lerms of flnanclal servlces. Powever, Lhe changlng
regulaLory landscape followlng Lhe crlsls could poLenLlally llmlL Lhe fuLure success of
London lf lL ls seen as relaLlvely over-regulaLed compared Lo emerglng flnanclal
cenLres ln Lhe Mlddle LasL and SouLh LasL Asla.

1ab|e 6.1: CompeLlLlveness of leadlng lnLernaLlonal flnanclal cenLres based on Lhe Z/?en Clobal
llnanclal CenLre lndex (ClCl) 2007-2009
Internat|ona|
f|nanc|a|
centre
GCII 2009 kat|ng GICI 2007 kat|ng Change rank Change rat|ng
London 1 790 1 763 no change +23
new ?ork 2 774 2 760 no change +14
Pong kong 3 729 3 684 no change +43
Slngapore 4 718 4 660 no change +39
Shenzhen 3 693 - - new enLry new enLry
Zurlch 6 676 3 636 -1 +20
1okyo 7 674 9 632 +2 +42
Chlcago 8 661 8 636 no change +23
Ceneva 9 660 10 628 +1 +32
Shanghal 10 633 24 376 +24 +89
5ootce 2/eo Clobol lloooclol ceotte loJex 2009, 2007.

1hese changes ln boLh reLall and wholesale secLors, LogeLher wlLh slgnlflcanL
CovernmenL flnanclal supporL, have resulLed more recenLly ln a moderaLe lncrease

44

ln Lhe llquldlLy of morLgage flnance alLhough proflLablllLy remalns a key concern for
reLall flnanclal provlders (CML, 2010).
Powever, Lhe lmpllcaLlons of Lhls changed morLgage markeL ln Lerms of flnanclal
lncluslon remalns far less cerLaln as demands for larger deposlLs poLenLlally
challenges Lhe rlse of Lhe much lauded uk 'home-ownlng democracy' as cerLaln
lndlvlduals wlll lnevlLably flnd lL more dlfflculL Lo meeL Lhe assoclaLed changes ln
lendlng crlLerla.

6.3 1he construct|on of the reta|| |nvestor and the chang|ng re|at|onsh|p between asset
management and reta|| banks |n the Uk
1he changlng naLure of Lhe relaLlonshlp beLween asseL managemenL and reLall banks ln Lhe wake of
Lhe global flnanclal crlsls ls llkely Lo be shaped slgnlflcanLly by Lhe flnanclal acLlvlLy of lndlvldual
lnvesLors. Accordlng Lo lSA (2006), prlor Lo Lhe credlL crunch, 43 per cenL of consumers dld noL wanL
Lhelr savlngs Lo be exposed Lo any form of rlsk markeL, even Lhough Lhe governmenL had made
aLLempLs Lo culLlvaLe a populaLlon abundanL wlLh reLall lnvesLors. ln a reporL for Lhe lSA, 8anks, eL al
(2008) observe how only Lhree ln elghL households wlLh adulLs aged 30-64 hold lnvesLmenL lSAs or
shares, where Lwo Lhlrds have cash savlngs.
WhllsL Lhls polnLs Lo decreased rlsk appeLlLes amongsL reLall consumers followlng Lhe global
flnanclal crlsls, research suggesLs LhaL Lhe ouLcomes are llkely Lo be more mlxed, parLlcularly amongsL
younger consumers who do noL have experlence of prevlous recesslons, as mulLlple forms of
consumer preferences emerge. lor example, research by Lhe lnvesLmenL ManagemenL AssoclaLlon
(lMA) on acLlve uk reLall lnvesLors suggesLs LhaL 43 per cenL of lnvesLors are prepared Lo Lake rlsks Lo
meeL opporLunlLles ln Lhe markeL, wlLh one Lhlrd of respondenLs bellevlng LhaL new opporLunlLles
would emerge from Lhe credlL crunch (lMA, 2008). Accordlng Lo Lhe lMA Lwo Lhlrds of uk reLall funds
are ln equlLles, alLhough uk reLall lnvesLors are now dlverLlng Lhelr money from equlLles and
properLy lnLo bond markeLs. AlLhough Lhere have been wlLhdrawals from Lhe markeLs by uk
lnvesLors, Lhe lMA malnLalns Lhere are far less wlLhdrawals by uk reLall lnvesLors Lhan by Luropean
lnvesLors, as consumers are holdlng ouL for a rebound ln Lhe markeLs (8ryanL & C'Sulllvan, 2009).
1he fuLure developmenL of Lhe relaLlonshlp beLween reLall lnvesLors, asseL managemenL and
reLall banks wlll also be drlven by changlng consumpLlon pracLlces amongsL reLall lnvesLors. ln
addlLlon Lo relylng on advlce provlded by llAs and reLall banks when maklng lnvesLmenL declslons,
lndlvlduals are lncreaslngly Lurnlng Lo: fund supermarkeLs such as lldellLy, comparlson webslLes such

43

as Money SupermarkeL and advlce slLes such as MoLley lool (as shown ln llgure 6.1). 1hls ls
slgnlflcanL ln Lerms of Lhe relaLlonshlp beLween asseL managemenL and reLall banks because Lhese
lnformaLlon sources allow consumers Lo purchase producLs dlrecL from asseL managemenL flrms
raLher Lhan golng Lhrough Lhelr reLall bank.
I|gure 6.1:MulLl-channel reLall lnvesLor-saver rouLes



8y poLenLlally bypasslng reLall banks ln Lhelr flnanclal pracLlces, Lhese developmenLs polnL Lo Lhe
need for reLall banks Lo lncreaslngly Lallor Lhelr producLs Lo Lhe changlng demands of Lhelr cusLomers
ln order Lo compeLe successfully ln a mulLl-channel asseL managemenL world. Powever, work on
flnanclal excluslon polnLs Lo Lhe lmporLance of framlng such developmenLs wlLhln debaLes
concernlng flnanclal llLeracy such LhaL cerLaln soclo-economlc groups are noL furLher excluded from
flnanclal servlces followlng Lhe global flnanclal crlsls.

46

7. Summary of I|nd|ngs and Imp||cat|ons
ln response Lo Lhe research pro[ecL's alms and ob[ecLlves, followlng deLalled analysls of Lhe
operaLlons of 163 wholesale flrms operaLlng ln London, Lhe research reporLed ln Lhls research has
ldenLlfled lmporLanL flndlngs ln relaLlon Lo
(1) Lhe naLure of Lhe maln acLors and acLlvlLles wlLhln Lhe wholesale flnance secLor ln Lhe uk
LhaL engage wlLh Lhe reLall flnance secLor (Cb[ecLlve 1)
(2) Lhe producLs and servlces LhaL comprlse Lhe wholesale-reLall lnLerface ln Lhe uk
(ob[ecLlve 2)
(3) Lhe opporLunlLles and LhreaLs for Lhe wholesale-reLall lnLerface ln Lhe uk ln Lhe wake of
Lhe global flnanclal crlsls (Cb[ecLlve 3)
7.1 Ident|fy|ng actors w|th|n the who|esa|e-reta|| |nterface |n the Uk
1he research ldenLlfled and speclfled Lhe role of 47 lnvesLmenL banks and 116 asseL
managers offerlng servlces Lo 12 reLall banks ln Lhe uk
1he headquarLer offlces of Lhe 47 lnvesLmenL banks were concenLraLed ln Lhe uS, Lurope
and Lhe uk
1he spaLlal varlaLlon ln Lhe head offlce locaLlon of lnvesLmenL banks ls reflecLed ln
dlfferenL producL offerlng e.g. Luropean lnvesLmenL banks have a greaLer speclallsaLlon ln
covered bonds Lhan Lhelr uS counLerparLs
1he ma[orlLy of asseL managemenL flrms (63) were headquarLered ln Lhe uk
7.2 roducts and serv|ces |n the who|esa|e-reta|| |nterface |n the Uk
Servlces offered Lo reLall banks by lnvesLmenL banks can be grouped lnLo Lhree areas
(debL caplLal servlces, equlLy ralslng and managemenL servlces, rlsk and llquldlLy
managemenL servlces).
uebL caplLal servlces, parLlcularly securlLlsaLlon was parLlcularly lmporLanL prlor Lo Lhe
global flnanclal crlsls alLhough lL has decllned by 79 beLween 2007 and 2008
Powever, Lhe crlsls has provlded opporLunlLles for Lhe developmenL of oLher servlces
beLween lnvesLmenL banks and reLall banks (noLably mergers and acqulslLlons and equlLy
advlce servlces)

47

1wo maln buslness models shape Lhe relaLlonshlp beLween asseL managemenL and reLall
banks: fund of funds and mulLlmanager funds on Lhe one hand, and Lo a lesser exLenL,
fund supermarkeLs on Lhe oLher hand.
1hese buslness models have been employed Lo allow reLall banks Lo offer Lhelr cusLomers
a more global coverage of lnvesLmenL opporLunlLles Lhan would oLherwlse be posslble
lL ls lmporLanL Lo conslder Lhe regulaLory conLexL ln whlch Lhese buslness models
developed, parLlcularly Lhe uk CovernmenL's reversal of Lhe 'polarlsaLlon' rule ln 2004.
7.3 Imp||cat|ons for the Uk's who|esa|e-reta|| |nterface |n the wake of the g|oba| f|nanc|a| cr|s|s
Lxperlence from prevlous crlses wlLhln London's flnanclal dlsLrlcL polnL Lo Lhe ablllLy of
wholesale flnance Lo 'regeneraLe' lLself Lhrough new organlsaLlonal forms and producLs
Larly evldence suggesLs LhaL Lhe lmpacL of Lhe global flnanclal crlsls on London's
wholesale flnanclal markeLs has noL affecLed lLs poslLlon as Lhe world's leadlng
lnLernaLlonal flnanclal cenLre. 1hls offers conslderable opporLunlLles for uk reLall
flnanclal servlces ln Lerms of developlng Lhelr morLgage flnance servlces ln proflLable
ways as Lhey seek Lo recover from Lhe marked falls ln Lhe slze and proflLablllLy of
morLgage lendlng assoclaLed wlLh Lhe crlsls
8egulaLory changes wlll be a key deLermlnanL of Lhe fuLure dlrecLlon of Lhe wholesale-
reLall lnLerface, parLlcularly lf models of 'narrow banklng' are followed.
1he fuLure developmenL of Lhe relaLlonshlp beLween asseL managemenL and reLall
banklng wlll depend heavlly on Lhe response of consumers Lo Lhe credlL crlsls ln Lerms of
Lhelr rlsk appeLlLes and producL demands.
When developlng new producLs and servlces ln response Lo Lhls demand, work on
flnanclal llLeracy and excluslon polnLs Lo Lhe need Lo conslder Lhe Lypes of soclo-
economlc groups LhaL could poLenLlally be excluded from flnanclal servlces followlng Lhe
global flnanclal crlsls, parLlcularly glven Lhe ways ln whlch changes ln morLgage lendlng
crlLerla (parLlcularly loan Lo value raLlos) poLenLlal exclude some lndlvlduals, noLably flrsL
Llme buyers and Lhose on lower lncomes wlLh smaller deposlLs, from morLgage flnance.

48

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