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TSB bank returns to UK high street and ups the competition

By Matt Scuffham

LONDON (Reuters) - Britain's 200-year-old TSB bank returns to the high street on Monday after an 18-year absence, the result of action by regulators and the government to introduce greater competition for the country's banks following several consumer scandals.

TSB, set up in the 19th century as the Trustee Savings Bank group for those with modest means, is currently owned by Lloyds Banking Group, Britain's biggest retail bank, which has been ordered to run it as a standalone brand and plans to offload it entirely via a stock market flotation in 2014.

Britain's banking industry has been dominated for decades by a handful of names: Lloyds, RBS, Barclays, HSBC, and Santander UK control 83 percent of retail accounts. But public anger and mistrust has been stoked recently by scandals where it emerged that banks had misled clients into buying loan insurance they did not need, and separately collaborated to fix benchmark interest rates.

An influential cross-party committee of MPs set up to review standards within the industry said in June that a lack of competition in UK retail banking was an important reason why poor standards of conduct persisted in the industry.

The commission also backed moves to relax capital requirements for new entrants and the introduction of rules requiring banks to ensure customers can switch accounts within a week which come into effect on September 16.

TSB will benefit from having an established branch network and infrastructure. It will have 631 branches and 4.5 million customers and its relaunch will also be backed by a 30 million pounds marketing push from Lloyds.

Lloyds, Britain's biggest retail bank, was ordered to sell the TSB branches by the European Commission as a condition of a 20.5 billion pounds government bailout.

"(TSB) will have from day one one of the things which the challenger banks have tended not to have which is scale. The business, in a hundred yard dash, would be starting at the 90 yard line rather than the 110 yard line," said Ian Richardson, chief executive of Shawbrook, a much smaller bank which was set up in 2011 and lends mainly to small businesses.

Richardson said TSB can differentiate itself through its products, strategy, marketing and brand.

"If that stacks up and people buy into it, then that ought to further enhance competition," he said.

Other industry experts were sceptical. Shore Capital's banking analyst Gary Greenwood said he didn't expect a dramatic change in the competitive landscape in the next five years.

"TSB will be painted as a new challenger brand on the high street but I doubt that its pricing is going to be very differentiated to competitors. Current accounts tend to be very sticky and customers only tend to move if they have a really, really bad experience," he said.

Mark Garnier, a Conservative member of the cross-party parliamentary committee on banks, said fresh blood was needed.

"TSB is certainly not the answer. We want entrepreneurs to come into the marketplace and start opening banks," he said.

The TSB's trustee savings banks were amalgamated in the 1970s and 80s into the TSB Group, which subsequently floated on the London Stock Exchange in 1986, before being acquired by Lloyds Bank in 1995. Lloyds re-branded the branches and the TSB name disappeared from the high street.

Lloyds had planned to sell the business to the Co-operative Bank but that deal collapsed in April amid concerns over the Co-op's capital strength. It must now ask European regulators to extend a November 2013 deadline for the sale.

(Editing by Sophie Walker)