Lloyds' Embark deal is part of wealth war in banking

·Senior City Correspondent, Yahoo Finance UK
·2 min read
Lloyds ATM machines seen outside one of its branches
Lloyds' huge customer base and balance sheet should give it an advantage over most. Photo: Dinendra Haria/SOPA Images/Sipa USA

A surprise deal accompanied Lloyds Bank’s half-year results: the £390m acquisition of Embark Financial, a digital investment and retirement planning platform. 

Interim chief executive William Chalmers called the deal “significant and complimentary” and said there were “huge opportunities in this area”.

While the deal was unexpected, news of Lloyds' (LLOY.L) interest in wealth management should surprise no one who has been following the UK retail banking market over the last few years. Pretty much any lender worth their salt is getting into this business at the moment.

Rock bottom interest rates have poleaxed the core business model of retail banking, squeezing margins to almost nothing. Things are so bad that HSBC (HSBA.L) has even raised the prospect of charging for current accounts – a move that would likely bring an end to decades of free banking in the UK. This is the nuclear option and most banks are hoping to find other ways to grind out returns, hence the pivot to wealth.

Chalmers told journalists that Lloyds customers shift £10bn out of their accounts and into wealth management and investment platforms each year. The Embark deal should help keep that cash inside Lloyds – and earn a decent fee on the money along the way.

Embark, which has been around for a few decades, currently holds £35bn of assets on behalf of more than 400,000 clients. Most are self-directed investors and Lloyds hopes to become a top three player in this market over the “medium term”.

The logic of the deal makes sense but don’t assume it’s easy money. As well as competing with other big banks, Lloyds will be rubbing up against platforms like Hargreaves Lansdown (HL.L) and newer players like Freetrade. US giant JPMorgan (JPM) is trying to muscle in too. The bank recently bought UK digital wealth manager Nutmeg as part of plans to launch its retail brand Chase in Britain. 

Lloyds' huge customer base and balance sheet should give it an advantage over most. But the Embark deal is undoubtedly part of the arms race in the war for wealth.

Watch: Will interest rates stay low forever?

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