Bank of Scotland looks south; The Investment Column

Over the centuries the Scots and the English have embarked on many a bloody battle. But in the cut-throat world of banking, the English banks have tended to fight among themselves, leaving the Scots to compete for business north of the border. The complacency of the English is proving costly, however.

The 300-year-old Bank of Scotland, which reported record interim pre- tax profits of pounds 324.3m yesterday, is able to claim that its share of UK bank savings has climbed steadily from 3.52 per cent in 1980 to 7.39 per cent now.

That share has been distorted by Abbey National's takeover of National & Provincial, the former building society. Peter Burt, who has moved up to the chief executive's slot at Bank of Scotland, acknowledges his share will dip again next year when Halifax Building Society swamps the sector following its stock market flotation and re-emergence as a bank. But he expects gradually to claw back that market share by offering a superior service.

This is why Bank of Scotland can stand back from the race to become a "bancassurance" group, being pursued by many other British banks, thus avoiding costly acquisitions of life insurance companies. Of course the bank needs to provide some add-on services in a world that increasingly requires consumers to take extra provision for their savings and old age.

But Mr Burt's Bank of Scotland will concentrate on packaging other companies' products to meet its customers' needs, rather than getting involved in the risky process of integrating a whole new, and probably alien, business with the rest of the bank. The bank is currently tied in with Standard Life, which now owns just 2.8 per cent of the bank's shares after selling off a 29.2 per cent stake in the summer.

The bank may also need to link with another fund manager after British Linen Bank, its merchant bank which made profits of pounds 7.0m in the first half, sold its stake in Dunedin Fund Managers.

It intends to use its new acquisition, BankWest in Australia, to push into the burgeoning economies of South-east Asia. It will also provide its expertise in telephone banking to boost tele-banking in Australia and also at Countrywide, its New Zealand bank.

NWS, its Chester-based finance house, is one of the driving forces behind this tele-banking expertise. While the subsidiary can appear costly because of current expenditure on technology, income streams are rising and its customer lending rose 19 per cent in the first half.

The group managed to beat analysts' forecasts by raising income faster than costs in the half year. Projections for the full year have accordingly been raised to pounds 660m, putting the shares - up 9p at 264.5p - on a forward multiple of 8. A core holding in the sector.