Good afternoon and welcome. My name is Colin Mayer.
I am an emeritus professor at the Side Business School here in Oxford and a professor of finance at the School of Government.
My very great pleasure to welcome you to this. The fourth session in the series on levelling up regional disparities, inequality and social exclusion.
In the first three, we looked at issues around business skills,
and then we turn to how these issues enact themselves in a place, namely in South Yorkshire and Sheffield.
And today we talk, we turn to a third big issue in the levelling up agenda around finance.
Now, it's commonly thought that in the context of regional policy, that addressing questions of regional disparity is really a public issue.
It's about public finance, about taxation, redistribution, incentives for employment and investment.
And public finance and infrastructure.
But we heard from a last speaker, Dave Smith, who is chief executive of the regional authority in South Yorkshire, the combined authority.
But he thought that private finance was at least as important and in some respects more important than public finance,
and that it should come before public finance. And, for example, thinking about investment in infrastructure.
So one of the ideas that we're going to be exploring this afternoon is.
Private financing of levelling up. Is this a news this is never a realistic idea to think of private capital markets
and private finance really playing a key role in terms of the levelling up agenda.
And to address that question, we're very fortunate in having someone who knows more about these issues than really anyone else in this country.
Ron Amazon. He was from 2013 until 2016, the founding chairman of Britain's state owned development bank.
The British businessman. And he therefore laid the foundation for one of the most important financial
institutions in this country involved in issues around the financing of levelling up.
He's now chairman of an extremely interesting and innovative new bank called Bank Rules.
Which is seeking to provide innovative solutions to giving regional finance available to growing companies.
So it's a tremendous pleasure to have you with us. Thank you very much for being here.
And could I just start by asking you a little bit about your personal story and how you got
interested in this issue around the financing of the private financing of regional disparities?
Well, the business bank itself was was probably the beginning of that, although I'd been involved in banking for a very long time.
But it brought home. And this was Vince Cable's idea to set up this bank.
There wasn't much support for it politically at the time. This isn't necessary or what.
It's not for the government to fix this. So we set this up from scratch.
And what we found, first of all, was some incredibly interesting people who came to join it who believed it was important.
So just as an example, we were told we had to pay bottom quartile salaries, which of course, in banking is anathema.
And everyone said, Well, no one will join. So the top end, we had a senior partner or ex-partner from a private equity company.
We had a senior member of J.P. Morgan, people who had been around and wanted to put something back into the system, not the other end.
We got fantastic people from McKinsey and BCG who wanted to work with government for a while,
so we had very high quality people of all of them had a sense of this is actually important, this court.
One of the things we were charged with amongst many was to become a subject expert on this because it seems it's not a sector,
it's this amorphous mix of things around the country and a great variation.
So we did a lot of research,
and that research brought home the dilemma that many of these systems faced in accessing finance and building growing the businesses.
So that was a social experience. It was interesting how rapidly it moved.
You know, within three years, we mobilised seven billion of new money. We financed 40000 new start-ups,
which no one else what government could have done because these were start ups for people who had no business experience,
no security to offer, and we would lend them up to twenty five thousand pounds.
Every other bank would run a mile. We gave them a mentor. And this is still true.
But but that had an extraordinary impact, too, because we learnt something about the social side of this.
I don't know what the number is now, but at the time.
So for 40 percent of our applications were from long term unemployed people, and the longer you're out of employment, the harder it is to get back.
Probably would never have thought of starting a business and what someone's prepared to take a risk on me.
They had the lowest default rates. Which was interesting, someone's given me a chance.
Now the Taxpayers Alliance thought this whole thing was a waste of money anyway because we budgeted to write off 35 percent of these loans,
which was realistic. But the average loan for these people, people's find a half thousand in $7200.
If you get someone off welfare for six months, you pay for it.
So you get into an unexpected consequence in this case of starting to understand what's out there and what's going on.
And it's it's from the individual all the way through to bigger corporates.
So that's more than sparked my interest when I was asked to chair back north.
I looked at it and it was quite simple. In a way, it was the best esame bank model I'd seen.
And one of the best teams I'd ever come across. And again, some extraordinarily good people coming together around an idea and a cause.
And that's what it was seeming to put back finance where it was needed for SMEs, and that was critical for the regeneration of the economy.
So it was getting back to the shop and having been at the government then.
So that's how we got to where I am now. So. Why is that so important in this story?
And do you think the private finance is really an alternative to public finance?
Well, it's not an alternative. This is a complementary fit. This is about a partnership.
I'm absolutely convinced levelling up cannot be done without private finance.
But if we come back, we circle back a bit because it always goes without saying that finance is critical to supporting the growth of businesses and,
of course, economies.
Most of the conversation recently about the government's role has been, well, how much are they going to spend and what will they spend it on?
And a lot of that is brewing around infrastructure, roads, rail and connectivity.
Clearly is important, but on its own, it's not enough to regenerate an icon, especially as the back-pedalling on this now.
But it's not irrelevant and a conversation I had with Andy Burnham a little while ago and I said, Well, what's your major challenge right now?
He said transport is its transport. So very important issue.
But the other thing about government and what the conversation is going on now is that a criticism that's been levelled is,
they have, quote, defined what levelling up meanings. And my view is they can't define it, nor should they try to define it,
because what levelling up will take has to be defined by the regions themselves within the regions.
All of these regions are different. They've got different histories, different cultures.
So they've got different challenges, just opportunities. They're all at different stages of development.
So there's an enormous difference between them and a lot of this, and it's emerging now,
as we're seeing of local leadership taking back control over their own feet.
And it's for these regions to come up with objectives and strategies that define the resources they need,
some of which government will be able to supply.
But in a sense, what you want to do is pull what you need, not just take what you're given, which has been the pattern in the past.
So, so that is critical. And another conversation with Roger Marsh, who's head of the Leeds LEP and chair of the Northern Powerhouse Project,
said The last thing we need from government is a template. One size fits all just doesn't work.
So if we look at an example of what's emerging here and you look at, say, Ben Houston and Cheese Valley three four five year old guy,
he bought the local airport because it looked like it was going to close, and he saw that being important for the future development.
He persuaded the government to let them set up a free port and decide they're actually thinking about buying the port.
The new local bank GB bank that's just got its licence there and to capitalise it when
Russian pulled 20 million out of the local pension fund to capitalise this bank.
This bank is a development bank and it will build houses construction in the local economy.
So what we're seeing is a what do we need? What can we get from government in this case?
We've got the free. What can we do for ourselves? And I find this certainly encouraging, but it needs the leadership and it needs that the confidence.
But if we come back to the levelling up pace and finance in general,
it will be impossible to level up this economy unless we address the needs of the SMB community, as well as 50 percent of our economy, GDP and jobs.
And we have to provide finance for that. So the one thing all of these regions have in common as opposed to differences
is a serious impediment to accessing finance to scale up these businesses.
So if we look at Germany in the Middle East,
then what we know about that is it's the core of the German economy and the engine of the normal export success.
But it has a stable infrastructure of local banks to spark housing lenders that are totally dedicated to supporting that esame community,
so much so that it's it's against the law.
So each of these banks to move outside of the region and lend money, so we don't have that infrastructure, what infrastructure we had, we've lost.
So very interesting report that I know you contributed to Colin from the All-Party Parliamentary Group that was published in September,
was scathing about the availability of private finance.
But the critical nature of it. And two things to me leapt out of that report.
One was because of the difficulty accessing finance, 73 percent of all SMEs would rather grow slowly and borrow money and grow quickly.
There you have a central dilemma to any levelling up. The second interesting step was from Sherry Coutu from the Scale-Up Institute,
and her calculation is that if you can get a one percent increase in scale ups,
it would create up to a quarter million jobs and 38 billion GZA contribution to the economy over three years.
Now we might argue about the statistics and whether she's accurate, but order of magnitude, we know it's true.
There is plenty of evidence that scaling up SMEs has a major economic impact.
Finance for that would be critical in levelling up. It's not there, sir.
So what's the problem we have? The finest, largest, most international capital market in the world.
And yet you seem to be saying that there's something that's not working in terms of financing growing companies in the region.
What's the problem? Well, it's one that I think is easy to define.
We had a dominant for banks and I'm not here to knock these banks,
but I think it's important to understand what's happened and what therefore was pretty predictable.
The distribution system for their financial services was essentially a 19th century,
early 20th century model of bricks and mortar branches around the country in the second half of the 20th century.
It became clear this wasn't sustainable, if only on a cost basis.
They were losing some of the traditional sources of finance and income.
So they had to do something about the costs, so they started to close branches.
With the advent of the digital economy, with the revolution one who was installing aiming at the mass market consumer market,
it was clear that branch network was now totally irrelevant regardless of cost.
It was a relevant delivery system and of course, it was always irrelevant for the big corporates.
Unfortunately, the sector for whom it was relevant was the Esame community because they required a
local capability to get decisions about financing their businesses from the banks.
And what had happened, the double whammy this, if you like, was that not only were the closing branches, but where the branches still existed,
the banks have withdrawn all of the people and skills from those branches that could make those decisions about lending money and
remote that into call centres and head offices of call centres can only do fairly trivial things like opening accounts or whatever.
But if you wanted to earn money, if you want to borrow five million for seven years to scale up your business, that goes to head office.
And the problem for the bank then was having withdrawn all of these skills that seriously
undermine their ability to assess the risk because the risk in an SMB isn't just in the numbers.
The balance sheet a personal account and not only had the remote to the decision making,
but they moved towards credit scoring systems algorithms which worked fine for mass market.
They do not work for the SMEs.
You have to know who the people are because a successful entrepreneur may have brought the business to a really good place.
Wants to borrow long term to move it forward. Very good.
But there the right people to take it to that next stage. Are they aware of their own limitations?
What else they might need to bring in? Do they have a clear plan? You need to know the people, and for that you need things to be local.
And it was interesting. I was talking when we were building the business bank to an ex chair of one of the big banks.
About this topic and this problem for us, amazing said, you know, is it it's all our fault.
He said we spent the last 15 to 20 years discussing the client interface.
So what happened was pretty predictable. It might have been inevitable for them, but it left this void.
And in this going back to the old party?
Comment and statistics. Luxury cruise have showed, but there's this massive opportunity, but you removed the vehicle for it.
Now this isn't just about bank finance. Clearly, it crosses into and includes, if you will, about patient capital investment itself.
And that's probably a separate subject in its own right. But there are problems there, too.
Talking to the CEO of one of the investment hubs in London and we were talking about how there's a very strong,
inward foreign investment still into the UK, especially in tech. I think we're number three in the world after the US and China.
And I said, well, how much of this gets north of Watford? And he said none of it.
I think there are over one hundred and sixty finance houses in London, I think six have offices outside of London,
so there's almost a statement of intent or lack of intent or a sense of what we can do it from here.
But you know, the credit officer in a big bank sitting in London looking at a loan application term
loan application for business in Rotherham has no idea how to make that decision.
And I think with the investment houses, because of the power of London and the Southeast, there's ample opportunities to fill the funds locally.
So there's a big question there about how do you persuade the investors to move north that there are great opportunities?
I think this comes back to local leadership and the ability to for want of a better term, sell the region to to to these investors.
But right now, it's a cap all of the.
If we think scaling up is critical for levelling up, finance is critical, we rank number 13 out of 14 obesity countries and success in doing that.
It's an indictment and it has to be fixed. So what's needed on the banking side, what what, what would turn around the British banking system?
Clearly, this isn't easy, but I think the first thing to say is it's unrealistic to expect that the big banks will come back and fix this.
I find it extraordinary. People I talked to think that will happen. And it's a mixture of things were funny in this country.
We tend to think of banks almost as utilities, and certainly we'll look if they cause a problem, they should solve it.
Nothing to do with that. It's about their own strategies and how they've evolved.
And if you look back at the big four banks 30 40 years ago, they all look pretty much the same today.
You know, you look at Barclays pursuing growth through investment banking. You've got NatWest to try to rebuild things after the obvious problems.
You've got HSBC with the vast bulk of its business in Asia, and you've got Lloyds who actually does have a commitment on the semi front.
But of course. They face the same structural issues that all of those big banks have had to
deal with in terms of costs and systems and so on and so forth and whatever.
So typically what you're going to get from these banks,
if you get anything is short term working capital and you can't scale up a business on that basis, so it won't come from that.
So what we are seeing is the emergence of a lot of new players,
and there's still a lot of cynicism about what we call challenger banks when we all get lumped together, but they're all quite different.
But certainly, I'd be worried as a big bank in terms of maybe I should look at this image of the threat of the new players,
the Revolut sponsors and starlings of this world to the mass market business.
So they are diverted by strategically. We've got to defend that.
But it's also shown that part of this answer is completely new platforms.
So what is happening with the challenge weighing on the business side?
And if we look at some ease and if I look at what we are doing right now is
we're putting back the skills into the marketplace that were withdrawn before.
So I see a significant move here for new players to come in and remodel whole thing.
It's very difficult for the big banks with big legacy systems to rewrite those systems and make them flexible.
So we are seeing a lot of new ones.
So if we take us, I mean, you look at up north of Rishi Kozlov,
who set it up and he came to see us at the business bank when he was doing that, and he launched that in 2016 and.
It was valued then at 60 million, and a lot of people said, well, you can't make money out of enemies and it's a waste of time.
It's value today, five years later. Just over two and a half billion.
And they've got a big balance sheet and they are profitable.
If I look at another example, Australia actually mirrors the UK in terms of the structure of banking there and that the history is of dominant banks.
The estimates lost out on a new bank was founded a few years ago, called Judo Bank by a chucker.
Joe Healy and his colleagues and it's entirely focussed.
No distractions, entirely focussed on SMEs.
And he wrote a book called Breaking the Banks in which he talks and on his website talks about the craft of esame lending,
and it's a very good phrase. This craft, which is a part about analysis and numbers, it's about some softer skills of knowing who these people are.
It's about knowing the region in which they operate these SMEs.
There are many myriad connexions within the regions in which they offer people that know each other.
And you have to know those communities, as well as knowing that pledge to know how to succeed.
So I see the move being to complete a new kind of the big banks won't fix it and nor should they.
They're not obliged if they've got their own obligations to shareholders strategically that move somewhere else.
It's time for a structural change of what will be, I think, can only be on the banking side, new players.
So tell us a little bit about what you see as being the structure that is successful.
Personal relationships, the type of lending that they need to give to really help as a means to start.
Well, I can probably best do that by talking about Bank North and we can relate it to other banks as well.
What we're doing is we a bank that is just focussed on enemies.
I mean, particularly it's. Focussed on term lending and providing growth capital to scale up businesses, so that's what we do.
We claim it's the first truly regional bank in over 100 years.
And not just mother. True or not, but in the sense of it actually being dedicated to regions,
it is so structurally we will deliver service through what we call ports around the country.
We will roll out these pods and a pod will have not just relationship managers, but it will have risk assessment lawyers values.
It will have all of the people there that can make a decision.
So the person you talk to in the bank as a client approves your loan unless there's something truly unusual about it.
But also, this is built on a digital platform,
which allows enormous flexibility and what it allows us to do with this decentralised approach is approve that loan in less than two weeks.
And typically with one of the big banks, it will take two to three months.
And the answer could be no.
And time is of the essence and that came out of this report from parliamentary group of the time wasters business don't have a lot of time.
They don't have a lot of resource. So getting an answer quickly is as important.
Research we did at the business bank early on was what is important to you.
Very early piece of research and top of the thing for all enemies was speed of response.
Cashflow is everything. You can go bust very quickly if you're not careful.
If you haven't got the money, so. So we can give an answer very quickly, and it's based on local knowledge, local capabilities.
There are some banks that have got regional representatives, but this is essentially a sales force.
It's a way of generating deals which then go back to to head office.
So it's it's purely dedicated locally with the infrastructure to support it.
So that's the structure of a new plan, if you like, based on technology.
But it's this combination of technology and people, which is critical.
These people will not get the loan on an app they will talk through.
Another thing that's emerging, which is very interesting, is we will work a lot with brokers.
And this is a new dimension. And so what will happen is the client will go to a broker so don't know where else to go and say, Well, here's my.
Transaction. This is what I want to do. And the broker with local knowledge will say, if that's what you want.
This is the bank. Go to there has an appetite for that sort of transaction or perhaps several banks who know.
But it's more than just a referral system. It is they will prepare paperwork which helps the client.
It helps the bank. So it's a really important intermediary function.
And last year, more than 20 billion of SMB lending went through the brokerage network.
And we know these people, so we've already lined up all of the brokers we work with through these are around around the country.
Interestingly, the business bank we were tasked by the Treasury to set up a bank referral scheme
because what would happen with the banks in the past some extensive losses,
if you got a no on an application you made, you just left your own resort.
And so the Treasury said, we want you to build two platforms so that the banks will now be required to refer
somebody onto a platform of other people who might be able to give them an answer.
It's frankly not a great scheme. I'll be honest about that, and we were sceptical at the time because it's not an intelligent interface,
whereas the broken system is a lot of these brokers are bankers.
And so they will understand the mutuality of that request and appetites over here.
It's another part of the efficiency of speeding up. So we're already seeing.
An important structural shift that wasn't there at all before, and it's already significant.
Now, though, the branch manager of the traditional British commercial bank was one of the most highly regarded members of his or her community.
Will your relationship managers have that sort of status within the communities that are operating,
do you envisage that clients a company coming to you will have the same relationship manager for a long period of time?
Is that how you're trying to build the team? Yes. Look, if you have the power to give money, it tends to give you a status.
You know, you're a respected member. And more particularly the respect in the past for the branch manager came from not just the boss in the bank,
but the fact is they were a member of the community in which they operate.
They knew people and they were respected on a much broader scale of actually this individual,
male or female is important to us as a community and our community thriving.
And it is this taking back control and people feel right to feel they've lost control over their destiny because
something they need is being taken away from them to some faceless individual in London who couldn't care less.
In the end, about your account, local economy, these are people.
We will recruit local people to opt to head up these ports.
It's interesting we had an approach.
We have a plan to roll out these ports, but we had an approach from another city that wasn't on our initial rollout scheme.
That said, look, we've been researching some issues in our community and every one of them said the same thing.
Access to finance was everything. When you put one of your ports in our city because we need a local bank and that's what this is,
it's putting a local bank back with local people and a local awareness and commitment.
And they're so passion about, we're going to fix this.
I think it's interesting. There's a re-emergence, I think of regional identities in this country where, you know,
it's all gone too far from mass market and, you know, anonymous sort of things, and I'm wanting to rebuild pride.
And this is going to be a partnership in this whole thing.
And I'm I'm impressed by your study, Colin, where you talk about the need to look at the role of the private sector,
the public sector, education and training and communities. We have to have all of those who finance is a critical piece of this.
And without that, by the way, none of it can happen.
But for it to work effectively, we've got to think about the changing dynamics of the UK and its economy and how those dynamics have to change.
So levelling up. Has to be pulled from the regions, and I always say we take government out of this because I think there is a great complementarity.
I'm a great believer in government involvement. It was a great example wouldn't happen without it.
But at the business bank, you know, we put the Northern Powerhouse fund together,
a middle engine fund for two million Northern Powerhouse and I think 600 million.
And a number of other angel funds, low level VC funds that weren't available through the normal channels, but in the end,
the government cannot be the system, the government cannot be the new infrastructure to replace what the banks have.
It simply doesn't make sense. It's not practical, but it's a great partner.
Look, we as a new bank are talking to the British business bank. We see that as a possible partner that wasn't there before.
So I look, I'm a big fan of the business, but I would say that, wouldn't I?
But the fact it's still there and is growing,
and we found that we were being asked constantly by the Treasury to do more and we had an extraordinary experience.
We went in off for more money, which we did all the time.
At one point, and they gave us more than we asked for which other things ever happened before in Treasury.
So. So the government has to be there,
but I think it's back to this actually government British business might be
really good for our community if you could do something that looked like this.
So a real partnership, along with the other things that we talk about.
What about the other parts of. The financial system, Duncan is clearly important, but it's not the only component and.
Business needs equity sources of finance outside of the southeast.
There's very little in the way of an angel community. Private equity is very heavily concentrated in the southeast.
What what needs to happen in that school? Well, there's no doubt we need to get equity into this.
This equation on the business bank has helped some of that.
The real question I don't think we have an answer to this year is why isn't it there?
Why amongst all of these houses in London, I mentioned the only six of them have offices outside.
Is it a lack of appetite? Is it a lack of awareness? I think it it's a fear isn't the right word, but let me use that.
It's a fear of the unknown. We're familiar with this territory.
It's a community. Obviously, the city and everybody knows everyone.
They know who the different players are. It's therefore easier for them to do the transaction, arguably.
And if they don't need the additional business, well, why would we bother?
I think this comes back to the regions have to say, Look, we do need equity.
This is the sort of quantum we look for. This is where we have it.
And for them to go and ply their trade in London, for them to look locally, to build local equity capability again.
You made a comment in your research brief that if we look at the industrial revolution, none of that was driven from London.
It was the Chamberlains and Wedgwood, all supported by local banks, which have now disappeared.
But they also had local stock exchanges, so local people invested in local companies.
But there isn't that capability at the moment. So something like that has to be rebuilt.
I I wouldn't be entirely optimistic about dragging people out of London, but I see no reason why investment houses can't be set up locally,
and we're having a conversation right now with an organisation called Regionally.
Which is an advisory firm on equity investment, and it's based in Wolverhampton.
And they're absolutely dedicated to. To help companies raise equity funds, so they have connexions in London, so they know what the appetites are.
So it's a little bit like the broker analogy of matching people up across the piece.
So we're seeing more of this, and this doesn't seem in any sense like a flash in the pan,
there's more and more of this not happening of local initiatives.
The fact that Ben shot and killed 20 million out of his pension fund. There are more ways of getting equity than just talking to some fund.
And I think the local authorities. Need to are looking at should we be moving money into these things we have as part of our capitalisation,
an investment from the Greater Manchester Combined Authority. They decided to invest in us.
I think that's another component. So that's equity in our bank from them.
So I think that's another avenue because people are going to take responsibility for fixing these problems.
This is back to leadership and taking ownership for what can we do?
And to say, well, we can't do equity because it's all in a lot of fun. Find your own.
Get creative about this. Roger Marsh. When I was speaking to him, I was talking about the new West Yorkshire morality that's been set up.
And I won't mention the actual numbers because it may not be public knowledge, but they will get a fairly significant annual income for that morality.
And instead of it being dissipated, I'm not saying it would be wasted,
but you can often see these things go across a million projects that doesn't move the dial on anything.
He's got to securitise it into an investment fund so that we'll look at that investment fund as something very powerful.
And he's talking about a big number where they can look across the territory and say, Where's this money needed?
I think this great that's taking control. So it's there's a variety of ways you can find it equity.
If there was a little local stock exchange, I'm not sure if that's ever realistic.
But it is a way, and there's lots of rich entrepreneurs, some of them invested in our business.
So we've got a lot of high net worth individuals to invest in our bank.
Another form of equity. And there are ways to access that.
There are companies in the regions, one that we use who know how to get to these people.
So there's a multitude of sources of equity. It's about mobilising it in the region locally.
But what about the need for people to have the skills to be able to?
Gain access to the finance and the mentoring and the networking that goes on in places where there's a really vibrant, entrepreneurial culture.
Isn't there a problem in terms of provision of that knowledge base?
Yes. One of the things we did right at the start of the business bank was to produce a pamphlet on how to write a business plan.
And one of the problems many Hashmi's had and still have is if you want someone's money, you need a persuasive argument.
You may be passionate about your business, but they look at it in a different way, which is how am I going to get my money back?
Hopefully, a bit of profit so that skill set on its own.
If you're an entrepreneur with a passion about a particular product, it's probably never been part of your past.
So that was a small gesture. We work with 21 different organisations to put that together.
The FSB was one of them. Chamber of Commerce was another.
What's needed, of course, there is an awareness of I've got a problem. I need some training.
And again, I think that's that's coming.
And I do think that's a big part of your project about the need for education and training, which is you can't just moan about not getting money.
You have to understand why you didn't get it. No, this has been a big problem.
I have to say with the big banks came out of that report that most of the time when businesses were turned down for banking finance,
nobody explained why the money wasn't approved, which doesn't help at all.
Was it because, well, we just don't have enough time for that or actually the business?
Probably just awful. If you've done this, this this well, then we might have listened to it.
So there is a big educational issue. The. I think what happened or can happen here is there's an awful lot of role monitoring, monitoring if you like,
where people look across their territory in the region and see successful businesses.
They do learn growing various functions and whatever and chatting to other business people.
How did you get that money? How did you go about it?
So there's a lateral thing that an informal process, but I do think.
Yes. Look, it's an issue. How is it going to be fixed?
I think there's. A range of ways,
and I want to encourage actually if the re-emergence of local technical colleges that
have been kind of sidelined from the education system but re-emerging as providers of.
Genuinely needed skills training not to do with banking and finance, but gee, make wind turbines in Hoshiarpur seriously deprived town.
And I know because I come from there and they are sponsoring students at the local technical college to develop skills that they need.
There is no reason why that technical college and others can't provide training on business management,
business plan preparation, understanding how capital markets work, understanding the way investors think.
And this is not, dare I say, rocket science.
These are easily trainable. You have to see the need. Well, desperation might get you there if you're not getting the money you want.
So, yes, it's an issue. There are things happening.
Isn't enough? Probably not. But I have to say, if we get back to truly regional delivery of banking services and by the way,
one thing I forgot to mention that most people might be aware of is handles.
Banking has proven this benefit of local decision making the top rated for SMEs because
they have branches actually in towns where they make decisions expensive structure,
but nevertheless. But what you will get then, because you're talking to the people.
Actually making the decision is you do get the opportunity to learn because if the answer is no, you can ask the person, Well, why didn't you do it?
If it's somebody sitting in head office in London, you're never going to get. It's just someone else pushes the message on.
And will the relationship managers and bank rules be providing that Typekit?
Yes, absolutely. These are all bankers recruited locally.
We've had, interestingly, a bit like the business being extraordinary income of talent,
of people who want to join this sort of institution in this region.
Put something but. And so we get some very talented people who have been at the sharp end in other banks don't like the way it works.
But these are smart, clever people and they see it as their job.
We are developing relationship shops here that we want to be long term.
We're a long term lender. And for that, you can't just have one conversation and then wave goodbye.
It's a constant discussion about what's happening with the business.
What isn't happening could be helps more and someone else help.
We expect to work with other partners. So if somebody says.
Actually, you know, we need even more patient capital, you're likely to say, you know,
you got to the stage where you need a different capital structure, you need some equity in here.
And this is what you want to do.
A lot of small businesses are terrified because they said, Well, whoever puts this in is going to want to put a director on my board.
I'm going to lose control. So it was a classic reaction. Not necessarily true.
But we are looking at, well, talking to regionally. We would look to work with other partners where if that happens, if you say, look,
you really need more than just bank finance, we know somebody who can help you.
And it's it's an educational thing, as well as just a referral thing that sending it to someone like that.
So again, the spark of partnerships and communities and groups of people who, as Bob, say families are not famous,
but something I always ask when things are tricky is are we having the right conversation here on all the right people in it?
And frequently, we don't make progress because we don't have the right people.
It's well, I don't know the answer to that. Well, actually, I do, but I know some might.
And it's that willingness to work with and be generous.
I care about a business that you want to help them help them through that.
Each of these poses a different challenge, and getting them through that is often an educational thing.
This fear is based on an ignorance or, well, it was a story published which I saw, which was bad news.
Well, the stories that get published? Yes.
Look, that's another challenge. It needs to be tackled. And one of the biggest challenges that Britain faces is that starts businesses,
but it's very bad at them building them into national and international competitors.
How far does your lending go? What's the maximum loan?
Well, at the moment it would be up to five million, but you know, we're we're just starting out, right?
That could increase. But you know, in the early stages, you watched very critically by the regulator, right?
During this period, we need to increase our capital, which would certainly increase our capability to lend more than that.
But in the early stages, we can end up to five million. Five million is quite a lot for most businesses, most small businesses.
And we are in a very specific part of this sector, as I say, those that want to grow.
So that's, you know, it's half a million, up to five million.
But I can tell you, OK, North, having shot it out like that five years later, are lending much, much bigger amounts, tens of millions.
So this doesn't have to be a constraint.
It's largely early stage. Growth. If you like pangs of the capital that's required and getting that capital, you know, there's a challenge here to.
It's had some publicity lately in that the capital ratios that small banks have to keep a much the same as the big banks.
And it's a real Panopto. So we've got to hold what we think are bigger amounts of capital necessary
because the smaller banks are much simpler risk structures than the big banks.
And we feel that these should be eased and immediate after breakfast,
the Brexit and the PR said, we're going to look at this to ease the restrictions.
We haven't heard anything yet. So there are some things that could be done there that would increase the the capacity of us and others.
And when you talked about government partnerships, do you see a role for the government in terms of.
Partnering with private financial institutions. Absolutely.
Providing large amounts of finance. Absolutely.
As I said, we're in conversation with the British business bank about where they may be able to help us and.
That's we've had several and there's one next week. So this isn't a story, we're not going to do that.
They've evolved. They've set up a subsidiary called Patient Capital.
They're well aware of this gap and the need for patient care, both equity and debt.
So yes, we expect to to work with British business. Absolutely.
And of course, they have from day one provided a number of facilities to banks where,
for example, if you've reached your limits on a particular client and look,
that's up to our risk appetite of providing guarantees to support a lifting a government guarantee to lift that limit.
So that was there from day one when we kept on still there finest guarantees.
So there's a multitude of things and they're very open and constantly talking about what else can we do and what we found.
So I think I hinted at earlier was although there was a lot of political scepticism which changed rapidly
because we had all of our targets and exceeded most them was the strong support throughout was Treasury.
And I think now looking at levelling up, everyone's aware that there's a big role.
Possibly expanding role for businessmen to play. But I repeat my earlier comment.
It can't fix the system that went bust or disappeared. This is a rebuild.
In my view, with private finance, private banking. And the opportunity is huge.
In terms of already, we've started to obviously talk about lending now we just got a licence a few months ago.
And we've got a load of applications more than we frankly can handle.
This is a. A low hanging fruit for new players, and I say that advisedly, you know,
the risks involved and have to know what you're doing, but it's like the whole levelling up thing the show recruited.
There's a big prise here for the government, for economies, for new players.
This is not a fly by night thing at all. So we're very optimistic and.
All the conversations, we're having a seriously positive with the various players that we are working with them hope to.
Thank you. Let me just throw it open to any questions that people have got.
I'm just. Thank you so much.
This has been absolutely fascinating. To that point of this being such a large opportunity,
I'm curious what it has been like to raise funds to increase the amount of capital you have at your at your disposal.
Have investors been able to see the great opportunity? Are you trying to you know, what is that relationship like?
What is that? What is it like to have those conversations with people? Thank you. I'm not sure I caught all of that, but.
What was the central question? In terms of raising the amount of funding you have available and talking to private investors to invest in your fund,
I mean, maybe I'm using the wrong words, but raising the capital you have at your disposal for for the bank?
Are are people willing to do that? Are people interested? Do they see the opportunity?
What are those conversations like me asking the right question? Well, that's fine.
No. The short answer is yes, they are.
The question is. I think what we've been talking about here is it's sufficient.
What we do know is there isn't enough of an appetite to do that.
And these appetites do change an awful lot. So for example, if you were a biotech start-up or some deep tech start-up,
you get people far more interested because they're seeing all sorts of fantastic growth as opposed to something might be just more local.
Think about techies.
You can globalise that if it's any good, whereas if it's a local business with just a local opportunity, that may not go very far.
So some investors are really looking to a significant payoff from that particular deal.
Others a bank regionally would look at.
We're looking at making money in the region from a multitude of transactions, each of which we would hope be profitable.
But we see the return being a collective thing by work with good risks, whereas there are certainly on the equity side people saying no.
I mean, if you're dealing with private equity, for example, private equity has only one interest is what's the exit multiple and when is it?
So they're saying, Look, this is a good investment.
I went out in five years and I want a multiple of 10 times, and if I can't get it, I will invest the money.
But that's what product is about. And if you don't like that fine, so choosing a partner is important.
It's not just getting the money,
but I chaired a company that was funded by private equity and the chief executive was hard at work for a major corporation.
And he said, I can't stand these private equity people. They're on my case every week.
He said I used to put a budget together. We monitor it every quarter with head office or whatever, and then it lead me to it.
These people want numbers every week. Every fortnight they're ringing me up the calling in.
That's how they operate the forensic. As long as you are aware of that, that might be OK.
So picking your partner, this is important because it can backfire.
But. There are appetites for good business everywhere.
If you've got a good idea, if you've got a viable proposition, you can find the funding.
It depends where you are geographically, depending on how well you've written.
Your business plan depends on a number of factors. It may be more or less difficult.
But it's not that often that something that really absolutely hits the button in terms of an
opportunity and the need in a particular market that there won't be someone out there that says,
that's for me. And it might just be a high net worth individual.
So Vincent Online has asked, how quickly could you get scaling up to a level of regional banking, say, as there is in Germany?
How long, how quickly or how quickly to a reasonable level?
Well, what's a reasonable level? Look, it's a good question.
How fast can this move?
It will depend on a number of factors, I think the principle one will be the success of players who are going into this market.
Things can move very quickly if they say we were sceptical about this.
And one of the problems we have is people said, Well, you're a fintech challenger bank.
And you know, most those are not making money. But actually what they're talking about are mass market consumer.
So Revolut as managing going to something like 10 million customers from the big banks and I can't remember, I think it's to lose about 120 million.
So you know this, this if this doesn't work, then it'll attract a lot of capital.
Interesting. Despite that, we get lumped in with that.
So we're not even remotely in that area. So if I look at our area of esame banking up north has done extremely well.
It's one example, I think when you get two or three players who really start motor rapidly and we're getting a lot of pull,
if you like from the regions about this is what we need.
It pulls in all this pretty quickly. I think the real question is linking it to levelling up of how urgent is this for levelling up?
And of course, we still have to define what we mean by levelling up. But again,
this becomes a regional thing about how big is the problem and how quickly do you
need to move it in West Yorkshire as opposed to Cornwall in Seattle's interest?
If we put the Northern Powerhouse and the Midlands engine front together, Cornwall and Scilly ask Could you do one for us?
And they do struggle down there, and I talk to somebody who is trying to raise a fund for that area and people just say to remote and well,
it's just about holiday destinations, so they suffer from an image factor.
So how quickly it moves and needs to move is very much a function of what the problem and opportunity is.
And in the local economy, I think it will move fast. What do I mean by fast?
I can't put a number on it, but I think we are seeing a serious movement in this country.
First of all, the recognition, we've got a serious problem and the sense that while it might go away,
all the big banks might come back set against a serious opportunity.
And, of course, necessity. The government, I'm quite sure, pushed the whole levelling up thing initially as a political thing to the red,
although its post-Brexit imperative that we get the economy firing on all cylinders.
So there's an urgency undoubtedly about this, but I think it will move rapidly.
We're out of time, but. Paul, you wanted to be on our politics in all this conversation.
We barely use it, use the word universities, and it's not just that we're in one,
it's it's that Britain has 18 of the top 100 universities in the world, and that's where the ideas are coming from.
And how are you going to relate to that?
Is it is it the is it a much earlier stage that these ideas and he did?
Is that what's missing as well as the angels and and mentoring?
And what are you going to do in connexion to that? Are you going to put your arm around these companies or are you just going to make the loan?
Well, first of all, I think it's a very good point and I'm on your side and I've spent a lot of years on the faculty here,
so I'm your friend and the I heard a comment that came out of it was actually conversation with John Brown,
who was working on these committees with number 10.
And he said, Well, one of the people is absolutely clear that levelling up is all about R&D and university research.
And so it's part of that. From our point of view, we're not interested in that.
We will not finance start-ups. We've just decided we're going to focus because by focussing, we can do the job better.
And where some banks have strayed is where they've spread their interests too wide too soon.
And so they've dropped some in some banking and the other banks was dropped because
they were too busy trying to sort out the mass market stuff they were doing. So we said we're going to stay focussed on that early stage start-up.
So much, as you know, depends on what is it, so if it's biotech out of Oxford?
People are queuing up to invest, but these are a very special kind of funds individuals back to high net worth individuals.
But tech funds and we talked earlier about the amount of tech funding coming into UK from foreign investors.
Number three in the world of. So it's coming from a whole variety of it.
Again, back to the that's the sort of stuff you can globalise.
So this is very attractive now. If it's not biotech or what we might call deep tech, then it really does depend on it,
but it requires a very specialist kind of funder who's ready for that sort of thing.
We have suffered as a start-up because an awful lot of the investors who you would see out of there,
from the big to small, have policies that do not allow them to invest in what you call a pre-money start-up.
Well, it sounds like a brilliant plan. It seems to make sense, but you're not actually making any money,
and we have a rule constraint in our investment process that we simply don't invest in.
In our case as well. We won't invest to get a licence. Well, we've got a licence now.
We'll see if anyone's more interested. So it is a struggle to find what is a much smaller community of players who absolutely have an appetite.
And of course, the skill set to work on that. But look, the success.
I look at Cambridge. The tech part of Cambridge knows Microsoft and whatever all of that originating out of
early tech transfer out of the university and the biotech piece Oxford is enormous.
And I don't know a single university that doesn't have a department that just does this.
How are we going to monetise this research? We've got plenty of ways to finance university, but for anything else.
So this is a piece of it, Paul.
And this is why this is a multitudinous,
multidisciplinary challenge because there's so many components with different types of challenge or different needs.
But marketplaces tend to sort these things out eventually, maybe with some help from time to time from government.
And I I had a difficult conversation with the minister at the business bank,
where ministers sometimes will come along with a favourite project in their constituency and want you to fund it.
And it was a bioscience thing which at that time we were not interested in for all sorts of reasons.
And I had to decide whether I made a career limiting decision to say no, which I did, but.
But it is about appetites much. But look, you're right, this is a.
Economic enormous opportunity, you're right.
Fantastic university regularly three in the top 10 in the world, no other European well, EU country has got one in the top 10.
We don't play that card as well as we should.
I think. And on that happy note, we will have to draw this to a close.
Ron, thank you very much indeed for a fantastically insightful discussion about what is clearly a central part of the whole levelling up jigsaw.
So thank you very much indeed. It was a pleasure. Thank you.