Tycoon outlines his masterplan to shake up investment for SMEs at The Business Dealmakers’ Breakfast
Does Scotland need another bank? The Scottish-born entrepreneur and founder of East Kilbride-based Clyde Blowers Capital certainly believes we do.
Jim McColl was a guest panellist at The Business Dealmakers’ Breakfast in the Merchants’ House, Glasgow, alongside Calum Paterson, the retiring managing director of Scottish Equity Partners, and Will Whitehorn, Chancellor of Edinburgh Napier University, chair of both Craneware and Seraphim Space Investment Trust. [Whitehorn’s comments are included in the Big Interview here, and Calum Paterson’s comments can be found here.]
McColl spoke about his early business life before explaining why, in April 2018, he embarked on a personal quest to set up a new Scottish-based bank. “If I’d known what was involved when I got into this, and the pain to get where we are now, I probably wouldn’t have started it,” he joked, saying there were more than 1,700 regulatory policy processes that had to be documented and then tested by the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA).
Alba Bank, based in East Kilbride, is now open for business. The Monaco-based tycoon, who has also taken over Banque Havilland and relaunched it in the Mediterranean principality as Moncrief Private Bank, feels there is a huge gap in funding across the UK, particularly in the regions outside London, not just in Scotland.
People are being de-banked because they are too small. You can't open a bank account; you can't speak to a human being
In spring 2018, McColl spoke to the FCA and PRA about using the Airdrie Savings Bank licence and converting it to a new bank.
“This was to start a new Scottish-based bank focused on supporting SMEs,” he explained.
However, the savings bank licence was set up via a Victorian Act of Parliament in 1867, and McColl was warned the only way to change this was through a convoluted private members’ bill in parliament. Instead, UK regulators, in the years of ‘unnaturally’ low interest rates, told McColl new ‘challenger’ banks were being encouraged. He assembled a small team of experienced bank professionals and began preparing a banking application, but the project was hit first by Brexit and then by Covid.
He explained his rationale to the dealmakers’ audience.
“We had a golden era for entrepreneurial activities in Scotland in the second half of the 1990s up to 2007. This was with the likes of the Entrepreneurial Exchange, which was fantastic. When Tom Hunter became the exchange’s chairman, he took it to a new level with 450 members.”
Sir Tom’s energy and commitment got everyone working together and helping each other. “It was for entrepreneurs, by entrepreneurs. At the same time, you had the big banks in Scotland, such as the Royal and Bank of Scotland, and Clydesdale, and these were very supportive of entrepreneurs in Scotland.”
McColl spoke about how he managed to buy Weir Pumps in Glasgow, where he trained as an apprentice, and how the banks benefited from its eventual sale in 2011 with a rate of return of 21 per cent. Since then, it has become more difficult for small businesses to have a relationship with mainstream banks.
“People are being de-banked because they are too small. You can’t open a bank account; you can’t speak to a human being. It is just appalling for SMEs,” he said.
McColl had become a member of the Council of Economic Advisers for the Scottish Government.
“I commissioned a report from University College London on national investment banks because I became aware that it wasn’t a level planning field in the UK for industrial businesses. Companies that were exporting or applying to do big domestic jobs were having trouble.
“Yet other European countries have national investment banks. Germany at the top end have a national investment bank called KFW. It is funded 10 per cent by the government, 90 per cent on international bonds. It is treated like a government bond, so it is cheap and they raise their long-term money this way.”
KFW has over a trillion euros invested in supporting German “mittelstand” (SME) firms and infrastructure. “This is why Germany has historically been so strong economically.”
“Finland, with a similar population to that of Scotland, has a national investment bank called FinnVerra.
“These national investment banks will do guarantees, export finance and the equivalent for domestic jobs. If there is a big infrastructure or construction job in Finland and there is overseas competition, they will get the same support domestically that they would for exporting. They do bridging finance, short-term funding, all support for businesses. In Finland, in 2019, there was €10bn deployed that year.”
He compared this with the Scottish National Investment Bank (SNIB), which has been given £2bn over ten years. McColl’s paper was successfully taken forward, and Benny Higgins, the former banker, was taken on to build up the narrative for the SNIB.
“Benny did the best job he could do: but it’s not a real national investment bank; it doesn’t give guarantees; and it doesn’t raise outside finance. The beauty about outside finance in Germany and Finland is that it is not state aid because there is third-party private sector funding involved.”
We will have business development managers who will be like the relationship manager of the past
McColl said he has presented this investment paper to several Chancellors in Westminster.
“They were about to do something positive, when they changed the Chancellor. I’ve also presented it to the Scottish Government because this is no-brainer.
“The UK could turn the British Business Bank into an investment bank. It could then go out and raise funds in the bond market. It wouldn’t increase the borrowing in the country. This would deliver huge funds to support business in growth.”
So how does Alba Bank fit into this investment landscape?
“The theme is high-touch and hi-tech. We are using digital technology, data analytics, particularly with AI. We have huge dataset about SMEs around the UK. We are working with a Cambridge University professor who has a data centre that we can use to really target and understand businesses.”
While the technology is essential, the Alba Bank will have human beings that customers can speak to. “The important part is high-touch. Our model is to have the core office and in the regions we will have regional offices, not branches, were we will have business development managers who will be like the relationship manager of the past.
“They will understand the local business community, visit their factories or places of work, and be able to interact. They will have frontline credit working with them. This will mean companies can get a response more quickly.”
He says that at the moment companies are waiting three months for an answer – and are then turned down. “The service is appalling. I’ve heard so many nightmare stories about banking today.”
As The Business went to press, Alba Bank was demonstrating to regulators that it has suitable level of legally committed funds for the ‘authorisation capital’ of £10m, and was ready to go, making loans and taking deposits.
McColl’s vision is to build the bank to become a ‘one-stop shop for SMEs’, so there are likely to be bolt-on deals to enhance the service.
