London Scottish Goes Into Administration

Tuesday, 02 December, 2008

LONDON Scottish Bank, a small specialist lender best known for providing unsecured loans through door-to-door collection, has plunged into administration, Britain's financial regulator said yesterday.

However, both the Financial Services Authority and the Treasury indicated none of Manchester-based London Scottish Bank's 10,000 savers would lose money as a result.

The group, which has a market value of less than £4 million, offers fixed-rate savings accounts and lends money to people with poor credit histories, as well as running a debt collection business.

The Treasury said: "The Chancellor has put in place arrangements to ensure that all eligible retail depositors in London Scottish Bank will receive their money in full, including those with balances above the current £50,000 Financial Services Compensation Scheme limit."

LSB had total retail deposits of £273m at the end of June this year.

Some 700 jobs have been put at risk as a result of the bank going into administration, sources close to the company said. LSB's shares, which were suspended yesterday, had closed at 2.6p on Friday, giving it a market value of £3.7m.

The FSA said it had decided at the weekend that LSB should be stopped from taking further customer deposits as it no longer met the "threshold conditions for authorization" as a bank.

The Treasury said that £271m of deposits were protected – £240m by the FSCS, and £31m by the Treasury.

FSA sources suggested London Scottish was arguably the first British bank to go into administration – though Icelandic bank Kaupthing, Singer was a UK entity. Rafts of others have been bailed out by the government.

A Treasury spokesman said: "When a bank gets into trouble, the first action is to find a private-sector solution. It's not been possible in this case.

"The reason for not intervening to nationalize the bank is that it is a small bank. Its failure wouldn't create a wider systemic risk to financial stability."

LSB raised £28.5m through the sale of its factoring subsidiary in July, but the group still had a £12m capital shortfall at the end of August. The bank considered a £45m capital increase earlier this year but did not go ahead with the plan.

LSB revealed in June that it was in talks with potential buyers, and said yesterday that while some were still interested, there was no certainty an offer would materialize.

BACKGROUND

LONDON Scottish Bank is neither based in London nor Scottish. The business was founded by Lewis Livingstone in Wigan in 1895, when he set about providing loans chiefly to low-income borrowers.
During years of gradual expansion, mainly in the Midlands and the north of England, it added businesses such as debt collection and invoicing services.

The Manchester-based company changed its name to London Scottish in 1986.

Source: http://business.scotsman.com/