‘Banks are grappling with earth-shaking change’
I
t was an idea that seemed
bonkers at the time. When an
entrepreneur told the boss of the
government-owned British
Business Bank that he wanted
funding to set up a bank from
scratch some years ago, the chairman
could hardly believe what he was
hearing.
“He wanted us to take 10pc, but I
could see the headline – British
Business Bank puts taxpayers’ money
into bank with no customers. They’d
have closed us down,” recalls Ron
Emerson, who left the government
group in 2016. “That company is now
worth billions. We talked to a number
of challenger banks, and all of them
have seen their growth go [up] like
that.”
Now, years after that pitch, the City
veteran is about to embark on a plucky
venture of his own after being hired as
chairman of a bank that doesn’t even
exist yet. Backed by the Greater
Manchester Combined Authority and
provisionally called B-North (it can’t
yet call itself Bank-North while it
awaits a banking licence), the plan is to
launch a lender for small businesses
late next year with a series of “lending
pods” across the UK.
It is not totally new ground for the
72-year-old banker, who was chosen in
2013 by then business secretary Sir
Vince Cable as the founding chairman
of the British Business Bank. It was
intended to boost lending to small and
medium-sized businesses in Britain
and fix what Sir Vince called a “big
long-term problem in our banking
system”.
At the time, Chuka Umunna, the
then shadow business secretary,
dismissed the bank as a “few desks in
the Business Department”.
“Most politicians thought it would
fail, there were a lot who wanted it to
fail because it was Vince’s idea. It not
only didn’t fail, it was thriving,” says
Emerson. “It was an idea of its time.”
The keen flier, who has built a small
aircraft from scratch (he admits he is
yet to install the rocket-fuelled
parachute into the plane, despite
telling his wife otherwise), believes
there is a rapidly rising number of
UK-based entrepreneurs that will
create opportunities for challenger
banks. Emerson says many youngone trying to win over Britain’s
disgruntled small businesses when
B-North launches next year. RBS has
been dishing out a £775m giveaway to
challenger banks aimed at creating
more banking options for smaller
companies, a cash pile carved out in
exchange for its bailout during the
crisis and its failure to sell its
subsidiary Williams & Glyn.
RBS itself has also been trying to
improve its relations with small
businesses after being tainted by the
notorious GRG scandal. The boss of
Scotland’s largest haggis maker
Macsween of Edinburgh – an RBS
small business client – told The Daily
Telegraph last weekend that the
banker tipped to be the next RBS chief
executive personally helped him when
his business was on the brink.
Nevertheless, Emerson believes that
major shifts in the industry are
inevitable, which could unearth
opportunities for new, more
nimble players.
“God is on the side of the big
battalions. The big banks are not going
to go away, but there is going to be a
shift in what they do and how they do
it,” predicts the quietly spoken banker.
“Recession or no recession this is
about structural changes in the
industry that are not going to go away.”
Emerson, who has held senior roles
at Bank of America, Nomura and
Standard Chartered, is not the only
banker to spend most of his career at
the big traditional banks before taking
a punt on a rival start-up. Revolut last
week hired Wolfgang Bardorf, the
Deutsche Bank banker, as its treasurer,
months after bringing in Martin
Gilbert, the Standard Life Aberdeen
vice chairman, and Michael Sherwood,
Goldman Sachs’ former star
dealmaker. There are evidently
challenges in the market that are
causing financiers to think twice about
staying in their high-profile roles.
“You look at the TSBs of this world
and the agonies they’ve had with their
IT systems, crashes and problems,”
says Emerson. “Look at the banking
industry generally, look across Europe,
look at Deutsche [Bank], they’re all in
different ways grappling with what are
earth-shaking moves for them.”people do not want to “climb up that
greasy pole when the boss is ten floors
up in another city” – but they need the
right environment to encourage them
to bring their ideas to life.
He thinks that Boris Johnson,
“should never go near any businesses”
and instead rely on his business
adviser Andrew Griffith, Sky’s
long-standing finance chief who
earlier this year was chosen to forge
stronger ties between Number 10 and
the business world.
But with Brexit around the corner
and a no deal on the horizon, isn’t now
the worst possible time to set up abank in Britain? “Or you could say this
is a phenomenal opportunity,”
Emerson spins.
“Every economy has to have a
banking industry. The high street is
disappearing for retail, but retail won’t
disappear, it’s moving to the internet.
And banking is moving to different
methods of delivery, so we know that
is going to change.
“I had dinner with two of the big
bank chairmen a year ago and we were
talking about the future of financial
regulation, which I can assure you is
not good dinner conversation, and I
said ‘look, we’re wasting our time with
this conversation unless we can say
what we think the banking industry is
going to look like in five to ten years’time. What do we think?’ They had no
idea. But we all agreed that it’s not
going to look the same.”
Emerson, who started his career as
an engineer before moving intobanking during the pre-crisis heyday,
admits that setting up a lender in this
environment will not be easy. He says
that whatever Brexit deal is struck
“there’s going to be disruptions, so
we’re just talking about severity ofdisruptions” and confesses that the
firm has pulled together two business
plans – the worst-case scenario is that
it breaks even in three years. The
concern for SMEs is that they could
find their access to credit drying up in
a sudden downturn, and in recent
months banks have been examining
small business accounts to spot those
most at risk from a no deal. Emerson
says challenger banks could benefit if
the big banks decide to pull back.
“These [small] companies are often
left with a lot of uncertainty about
financial support, so there will be
opportunities there,” he says. “This
will be a highly flexible bank
competing with [banks] that are not
flexible.” Emerson will not be the onlyFormer chairman of
the British Business
Bank Ron Emerson
is piloting a new
venture to help small
firms with funding,
reports Lucy Burton
Ron Emerson will be chairman of a new
bank project, provisionally called B-NorthBusiness
Turn to technology peps up
world’s top coffee producers
A
towering machine rumbles
through the fields of Julio
Rinco’s farm in the Brazilian
state of São Paulo, engulfing whole
coffee trees and shaking free beans
that are collected by conveyor belts in
its depths.
This automatic harvester is one of
several innovations that have cut
Rinco’s production costs to a level that
those using traditional, labour-
intensive methods struggle to match.
With more mechanisation, the
world’s top two coffee producers,
Brazil and Vietnam, are achieving
productivity growth that outstrips
rivals in places such as Colombia,
Central America and Africa – and they
are set to tighten their grip.
A recent plunge in global coffee
prices to their lowest levels in 13 years
has begun to trigger a massive
shake-out in the market in which only
the most efficient producers will
thrive, according to coffee traders
and analysts.
Rival producers are increasingly
likely to be driven to the margins,
unable to make money from a crop
they have grown for generations.
Some are already turning to alternative
crops while others are abandoning
their farms completely.
Such shifts are almost irreversible
for perennial crops such as coffee,
because the decision to abandon or cut
down trees can hit production for
several years.
“Brazil and Vietnam have had
consistent increases in productivity,
other countries have not,” said Jeffrey
Sachs, director of the Centre for
Sustainable Development at Columbia
University.
In Colombia and Central America,
coffee is typically grown on hillsides
where mechanisation is more difficult,
and hand-picking cherries has kept
production costs relatively high. The
African sector, meanwhile, is
dominated by small-scale farmers.
Rinco bought his harvesting
machine for about 600,000 reais
(£120,000) and is paying the
agricultural supplies company with
coffee, delivering 400 bags annuallyover four years. This kind of bartering
is common in Brazilian farming.
One such machine in Brazil replaces
dozens of people in the field and cuts
harvesting costs by 40pc to 60pc, even
with financing and fuel bills. “Beyond
the lower costs, it made my life less
complicated,” said Rinco, relieved at
no longer having the gruelling task of
hiring suitable pickers every year for
the harvest at his farm in the São João
da Boa Vista area.
“People don’t want to pick coffee
any more, they go to town to findsomething else to do,” he adds.
Brazil and Vietnam now produce
more than half the world’s coffee, up
from less than a third 20 years ago, and
the proportion is rising, estimates
from the US Department of
Agriculture (USDA) show.
Brazil alone accounts for over a
third of the global coffee supply and
reported a record crop of 62 million
bags last year. It is expected to
produce another record in 2020,
Vietnam is also regularly setting
production records while, by contrast,
in Colombia the largest crop harvested
was in the early Nineties and inGuatemala nearly two decades ago,
USDA data shows.
Arabica coffee futures fell in May to
87.6 cents a pound – the weakest level
since September 2005. Prices have
since recovered slightly, but remain at
a level where few producers outside
Brazil and Vietnam can make money.
Arabica beans, which provide a
smoother and sweeter taste, constitute
nearly two thirds of the world’s coffee.
More bitter and stronger robusta
beans largely make up the rest of
global supply, much of the crop hailing
from Vietnam.
A warehouse owned by Simexco
Daklak Ltd, a Vietnamese coffee
exporter based in Dĩ An, near Ho Chi
Minh City, illustrates the scale of the
country’s coffee operation.
Coffee is stacked in neat piles
several metres high, awaiting export
to Europe.
“At the height of the harvest, having
enough space to create an aisle to walk
through the warehouse becomes a
luxury,” said Thai Anh Tuan, the
manager. “Every tiny bit of space will
be taken up by these little beans,”
he added.
Tuan also credits the steady increase
of Vietnamese coffee exports over the
past four to five years to an increase in
innovative farming techniques,
including intercropping – growing
different crops together – and the use
of better technology in irrigation and
cultivation.As prices plunge to their
lowest level in 13 years,
mechanisation in Vietnamand Brazil has helped to
slash production costsA machine harvests coffee in a plantation in the town of São João da Boa Vista, Brazil‘Beyond lower costs it has
made life less complicated.
People don’t want to pick
coffee any more...’REUTERS/AMANDA PEROBELLICV
Age: 72
Education: Mechanical
engineering, Manchester University,
business studies at Durham
University, research MA at Oxford
University
Family: Married, four sons
Career: Global head of wholesale
banking at Standard Chartered,
senior adviser for the Bank of
England and founding chairman of
British Business Bank
Hobbies: flying, travel‘God is on the side of the big
battalions. The big banks
are not going to go away,
but there will be a shift’The Daily Telegraph Monday 26 August 2019 *** 33
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