BMW enters the banking fast lane

ONE OF the world's leading car makers is to join battle with Barclays, National Westminster et al for the nation's savings and wealth.

In another blow to the historic dominance of the high-street banks, now having to grapple with an increasingly crowded market, BMW, the German car giant and owner of Rover in the UK, is to launch a bank in this country.

Peter Walker of BMW Financial Services confirmed that, at first, the service would cater for owners of new and used BMWs and Rovers, but is intended eventually to be available to everyone. "We are hoping to make a formal announcement about our plans soon," said Mr Walker, who was reluctant to go into detail.

However, he confirmed that BMW would offer a direct banking service, similar to those being developed by the traditional high-street clearers and Virgin.It would be offering savings and deposit accounts and loans, "in the first instance", before broadening its scope.

The initial model, Mr Walker added, would be Germany, where BMW is long-established as a major financial-services operator, specialising in savings and loans. The idea for a banking arm in the UK is understood to have been encouraged by a survey of customers, who said they no longer trusted the high-street banks and would like BMW to take them on.

"We've researched this and realised there is some 'brand-stretch' available," said Mr Walker. BMW currently offers car loans and insurance but this would be a big change in the company's profile and will send shivers down the spines of UK banks. It will be the first time that a major car firm has entered the market, trading on the strength of its marque. The move is likely to be accompanied by a heavy marketing campaign aimed at persuading customers to leave their normal bank for BMW.

The car maker has been attracted by the huge profits to be made from banking in the UK. Lloyds TSB is expected by the City to announce annual profits of pounds 2.5bn in a fortnight's time, while HSBC, which owns the Midland, is likely to top that with pounds 4.5bn. Even a small bank such as Northern Rock, the former building society, will have made a profit of around pounds 160m last year.

Industry analysts, such as Tim Clarke at Nikko Europe, remain positive about the outlook for the industry, buoyed by a strong domestic economy. According to Mr Clarke, it can only be a matter of time before the traditional UK banks respond to the growing threats from foreign entrants. He describes the need for a major shake-up in the sector, particularly for NatWest and Barclays, the two most vulnerable, as "increasingly desperate".

BMW is likely to be followed by a stream of other companies anxious to cash-in on their brand names. Recent research from the Henley Centre, the management school, has revealed that consumers trust certain companies and want them to move out of their normal activity into other areas.

"Brand management," said Henley, has become synonymous with "trust management". This is where Virgin and, latterly, Marks & Spencer have scored, expanding their operations into activities where there has been a decline in public faith and respect.