Barclays and Lloyds TSB forays into Europe 'face a decade of failure'

UK banks and insurance companies that are hoping to grab customers in the rest of Europe to boost profits are unlikely to succeed for at least 10 years, according to an independent financial consultancy.

Financial institutions that have already invested heavily in European acquisitions have also failed to create significant cost savings or other synergies, First Consulting says in a report published this morning. The report pinpoints language barriers, different tax regimes, financial regulations and varying behaviour of customers as the hurdles that companies have still not managed to overcome.

It is disparaging of efforts by Britain's biggest banks such as Barclays and Lloyds TSB to get a foothold on the Continent, saying that, particularly in central and Eastern Europe, they fall behind rivals such as Italian banks. Following its failure to buy domestic rival Abbey National last year, Lloyds has made it known that it is once again interested in a major European deal but has so far made no headway.

CGNU, which is renaming itself Aviva to sound more European, and French insurer Axa have tried to penetrate the Continent by buying a series of businesses. But First Consulting says they have not achieved the "Coca Cola level of simplicity". Unlike the US soft drink giant, which uses the same recipe in every country, financial institutions run their subsidiaries as separate companies. "Overall they have reaped little scale advantage while bearing the quite sizeable costs of complexity," the report says.

The research predicts that it will take at least a decade for banks and insurers to crack the most complex aspect of European integration, which is finding a uniform way to sell financial products to customers in different countries.

Plans to free up Europe's pension funds moved a step nearer yesterday when European Union finance ministers reached broad agreement on rules to allow funds to operate across borders. Ending an 18-month impasse, ministers backed, in principle, a compromise drafted by the Spanish EU presidency saying that fund managers could market their product abroad, subject to minor investment restrictions.