Too many companies are losing their Scottish headquarters and the damage to the nation will be severe, writes William Lyons
FOR A nation that prides itself on a financial service sector built on a tradition of prudence, the loss of its oldest bank amid talk of reckless mismanagement was, in the words of one Scottish-based analyst, "nothing short of humiliating and tragic"
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This week members of Scotland's 100,000-strong financial services sector will go to work in the knowledge that many of their jobs are under threat. Edinburgh may remain Europe's fourth-largest financial centre with seven of Scotland's top 20 companies – including Royal Bank of Scotland, Standard Life and Scottish Widows – all based in the Scottish capital and managing more than £327bn worth of funds, but for how long?
Thursday's takeover of HBOS comes just months after Carlsberg and Heineken's aggressive acquisition of Scottish & Newcastle. However powerful the local economy is, and Edinburgh remains strong, having grown 36% in the past five years, the loss of two FTSE 100 companies inside 12 months leaves a large dent in Scotland plc.
"This is not good for Scotland," says Peter Shakeshaft, former chief executive of Archangel Informal Investment, a venture capitalist specialising in funding Scottish start-ups. "It's a great shame. HBOS has been a fantastic institution. The fallout in terms of Scotland both in the corporate and personal sector will be pretty significant.
"But these are tectonic shifts in power we are experiencing. The loss of a big institution will lead to a lot of job losses."
The list of Scottish plcs that have either been taken over, merged or chosen to relocate their headquarters out of Scotland in recent months is growing with alarming pace. Companies such as Ardana, Dobbies and ScottishPower have left the quoted sector, while Thus, the telecoms firm, will soon be swallowed by Cable & Wireless.
On a smaller scale, bowls-to-green tea company Corsie Group was placed in administration, only months after dental technology company Idmos and social networking platform company DA Group suffered a similar fate.
Vebnet, the payroll software company, has also just been lost, though it remained under Scottish ownership as part of Standard Life.
With nervousness permeating the markets, many analysts are now openly speculating who will be next?
In the space of just a few days Lehman Brothers has collapsed, Merrill Lynch has been taken over by Bank of America and Morgan Stanley has begun talks with Wachovia. As the City goes back to work after one of it most calamitous weeks in recent times people are asking if there could be another casualty among Britain's financial institutions?
As the dust settles on the chaos emanating from Wall Street some are even speculating whether RBS could be caught up in the mix.
They point to RBS's recent near-£700m interim loss on the back of £5.9bn of credit market-related writedowns and a management under chief executive Sir Fred Goodwin and chairman Sir Tom McKillop that has suffered accordingly. RBS also has heavy exposure to the United States through its Citizens Bank subsidiary.
"To some extent one must be a little realistic about this," says Bryan Johnston, director with private client investment manager Bell Lawrie.
"If a company chooses to go into the marketplace and pursue a listing they must ride with the market and Royal Bank has been in the vanguard of making acquisitions in the East Coast of America some of which it maybe regretting now.
"But we have to be pragmatic, yes it is tragic and very sad (for HBOS] but Scotland has an honourable tradition of exporting talent, creating companies and giving them wings. That is continuing, but what worries me is the availability of the funding process for that.
"Scotland has an honourable history of developing SME companies and if they are going to find it more difficult to get hold of development capital, which they are, then that poses a rather more serious longer term problem which must be addressed with some immediacy."
One industry which must be looking over its shoulder nervously is Scotland's property sector. HBOS has a number of joint partnerships with high profile Scottish property developers including Kilmartin and Kenmore. It remains to be seen whether Lloyds TSB will retain these.
"We still have a major bank, in the form of RBS, based in the capital, which is more than many other small nations have, so we will have to be content with that," says Colin McLean, managing director of SVM Asset Management.
"A lot of lending is conducted locally and a lot of those decisions will still be based in the Mound, whatever the ownership.
"The big issue affecting Scotland is that of reduced credit on the overall UK economy. In particular HBOS has a number of interests in property companies and housebuilders. In the short term the issue will be around any change in those relationships, the capital they will need and the projects they have."
Amid all the mayhem surrounding HBOS in the months ahead there is a growing concern that there is a severe problem of replenishment of Scottish listed companies. Scotland's last flotation was nearly a year ago when medical billing software company Craneware embarked on a successful IPO.
The old argument that Scotland simply does not have the entrepreneurial spirit found in other parts of UK will only be exacerbated by recent events that have seen that list diminish.
"It has caused a lot of problems which at this stage are difficult to evaluate," says McLean. "People will really have to focus on what they do." It looks like a long year ahead for Scotland plc.
