Blackfriar: Company entering uncharted waters with new venture

THE news that Provident Financial has been given permission by the Financial Services Authority to launch a new savings operation may appear a strange move for a doorstep lender.

But on closer examination it makes enormous sense.

If it proves a success, the savings arm could turn Vanquis Bank into a self-financing operation.

Which is a very neat thing to do at a time when wholesale banking markets have dried up and no lender wants to be reliant on private placements.

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Provident’s chief executive Peter Crook said Vanquis Bank expects to start taking retail deposits in the late summer, early autumn.

Customers will be a very different audience from Vanquis Bank’s credit card customers who typically earn between £15,000 and £30,000 a year and live in rented accommodation or social housing. The savings business will target people with a decent sum of money in savings accounts, typically up to £85,000.

Mr Crook said the savings rates will be very competitive and the group aims to be placed high up in the newspaper ‘Best Buy’ tables.

Some will say there is no guarantee the new operation will be a success. The business will be going up against some very established banks and building societies that have made their name by getting into the ‘Best Buy’ savings tables.

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But getting into the top ten isn’t difficult. All savers want is a guaranteed lender and the best rates.

While the banks can’t slash their rates because they need to maintain profit margins, Provident isn’t launching its savings business to boost profits.

It just needs a new source of funding to operate the credit card business.

Meanwhile if savers pause at the unknown Vanquis name, they have the Government’s guarantee that it will protect up to £85,000 of personal savings should a bank go bust.

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That said, Provident should tread carefully with this venture.

It is heading into unknown territory at a time when many people are still very wary about the risks banks pose. A number of savers want the security of a “safe” building society or a well-known high street bank.

Fortunately, Provident has an experienced management team who know what they are doing.

n Britain’s journey out of the recession has slowed to a crawl, if the latest economic data is anything to go by.

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Manufacturing, until recently a rare bright spot amid the UK’s economic travails, earlier this week showed worrying signs of weakening.

The Markit/CIPS manufacturing index fell to 54.6 in April, from 56.7 the previous month.

Although still in growth, manufacturing is expanding at a much slower pace than at the start of the year. Manufacturers had, until recently, been benefiting from the weakness of sterling and a recovery in orders as companies re-stock.

But, as IHS Global Insight economist Howard Archer warned, the survey raises concerns “that manufacturers will find life increasingly challenging over the coming months”.

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Yesterday brought another glut of news showing the fragility of the economy.

Construction was the latest sector to report stagnant conditions. Growth in the industry slowed more than expected, with a 4.7 per cent quarter-on-quarter estimated contraction in output in the first quarter of the year.

The industry, which has already been hammered by the mortgage drought and hiatus in big construction projects, faces a gloomy year, as the Government’s cost-cutting plans put the brakes on public sector-funded schemes.

“It’s hard to find any evidence in today’s data to suggest that the overall economic recovery is back on track,” was the frank assessment from Samuel Tombs of Capital Economics.

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Then came three sets of figures showing the housing sector is going nowhere fast.

The Bank of England, Nationwide Building Society and the Land Registry all reported evidence of renewed housing market weakness.

The Land Registry said house prices suffered their biggest monthly drop in more than two years in March and net mortgage lending figures from the BoE came in lower than forecasts.

Mortgage lender Nationwide – which said prices were down 1.3 per cent in the year to April – predicted that house prices would end 2011 flat to slightly lower.

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Mortgage approvals were a relative bright spot, with 47,557 home purchases given the go-ahead in March, the highest number since November. But even this was slightly less than the 48,000 economists had predicted.

The BoE also reported growth in unsecured consumer lending slowing to £100m in March from February’s £800m, below expectations.

All of this piles further pressure on the BoE to keep interest rates at their record low of 0.5 per cent when it meets today.

Chancellor George Obsorne may have called for a “march of the makers” to fuel the UK’s recovery, but Blackfriar fears what he’s getting resembles more of a limp.