Pattullo's crystal ball

The thoughtful but wilful Governor, who upset some Scots with unheeded but dire warnings about voting for a Parliament with tax-raising powers in the run-up to last September's devolution referendum, is less open about his eagerness to see what happens with this.

''I will watch. I will watch,'' says Sir Bruce, who will hand over to Sir Alistair Grant, best known as former chairman of supermarket group Argyll (now Safeway), at the bank's annual meeting on May 29. He handed the chief executive part of his job over to Peter Burt in 1996 but has remained full-time.

Sir Bruce, who has turned down ''a lot of approaches'' by those seeking his wisdom after he retires, will be a great loss to the Scottish business community.

In 1961, he became the third person to be taken on through Bank of Scotland's graduate recruitment programme and started his career in the Golden Acre branch in Edinburgh.

He was, he admits, ''maybe a little lucky'' in winning first prize in the Scottish Chartered Institute of Bankers' examinations three years later. ''The bank sort of started taking notice,'' he says.

A rapid ascent of the organisation culminated in his appointment in July 1979 as treasurer and general manager (effectively chief executive) at the age of 41.

He says he was ''amazed'' to be asked but he quickly set about dismantling the old hierarchical structures. He realised many of his peers had ''a lot of ideas, a lot of enthusiasm, (and) a lot of commitment but, somehow or other, the hierarchical nature of the organisation never encouraged people to do their own thing and show what they were capable of.''

But Sir Bruce ensured those with good ideas were ''put on pedestals'', coaxing others to come forward.

He was also at the forefront of developing computer screen and telephone-based banking and direct mailing - realising Bank of Scotland did not have the money or time to build a branch network in England. More recently, the bank has made further inroads south of the Border through a highly successful joint venture with supermarket group Sainsbury.

It has not all been plain sailing - Sir Bruce admits the bank got the management of former subsidiary Dunedin Fund Managers wrong.

But Bank of Scotland has grown rapidly. In the year before Sir Bruce became chief executive, it made pre-tax profits of #34.2m before exceptionals. The equivalent figure for its latest financial year was #753m.

Now, aged 60, the man who has masterminded much of this growth has his heart set on spending more time with wife Fiona and his four grown-up children and playing ''veterans' tennis'' and hillwalking.

Asked about the highs and lows of his 19-year reign atop The Mound, Pattullo cites one of each: ''Having the privilege of chairing the bank through the Tercentenary in 1995 and then coming from that into the trauma of the Standard Life placing in 1996.''

A very public rift developed between Bank of Scotland and Standard Life when news leaked of the latter's intention to sell most of its 32.2% stake in the bank to the highest bidder because it had become too large. Sir Bruce said at the time that he felt personally affronted and Bank of Scotland was left wide open to predators.

Speaking during his penultimate week at Bank of Scotland, Sir Bruce was able to reflect humorously on the debacle and its outcome.

No potential bidder emerged, Bank of Scotland broadened its shareholder base, and its shares, placed with institutions at 222p each by Standard Life in July 1996, have since surged to 743p.

''I think if you had told me at the time that it was going to turn out so enormously well for Bank of Scotland, I would have been surprised. I am obviously absolutely delighted the way it went. That was my Waterloo, as it were.''

Sir Bruce, presumably casting himself as the Duke of Wellington and Standard Life boss Scott Bell as Napoleon, admits it was an ''awkward situation'' but adds: ''I think any sadness there has probably passed.''

Indeed, he cannot resist a laugh as he thinks of the gains which Standard Life missed out on by selling out when it did.

''If the value of that shareholding was getting too big in 1996, given the way the share price has gone since, by definition it would be even more too big now,'' he says, not missing the irony.

But what about the future independence of Bank of Scotland, which finds itself in a sector almost permanently awash with bid speculation?

''A lot of the talk about consolidation is yuppie comment,'' claims Sir Bruce, referring to City stockbrokers and analysts.

And the rest, he believes, comes from the biggest players themselves.

He points out that Bank of Scotland increased its mortgage book by 20% in its last financial year, while the UK mortgage market grew only 6% .

Citing the loss of market share suffered by major players Halifax and Abbey National, Pattullo says: ''Why do the biggest guys want to talk about consolidation? Because the biggest guys are normally losing market share.''

Sir Bruce does not believe a hostile bid would work in the UK banking sector.

''Clearly, for understandable reasons, the prices in the banking sector are high. For the acquiror to pay a fancy price to benefit the shareholders of the acquiree, it would have to be quite high. I would have thought the shareholders of the acquiror would have to start wondering whether this was a sensible thing to do.''

Sir Bruce would welcome an agreed merger between two of the big UK banks, believing it would create a ''soft belly'' off which Bank of Scotland could feed.

''If at some point in the future Barclays and National Westminster were allowed to join together, I have no doubt we would be a major beneficiary of that.''

Sir Bruce argues that the ongoing consolidation in the US banking sector is ''clearly necessary'', given that it had 14,000 separate banks and now has about 10,000.

Though acknowledging that weaker UK players might have to be taken out ''from time to time'', he claims: ''The UK situation is not comparable (to the US). We have quite a small number of genuine retail banks in the UK.''

Having a critical mass of major corporate headquarters in Scotland is a matter dear to Sir Bruce's heart.

He says: ''I am paranoiac, if you like, in my belief of the importance of head offices.''

Highlighting their importance to neighbouring accountants and lawyers offices in doling out ''high-calibre'' work, Pattullo adds: ''(With) a lot of Scottish companies, 70% or 80% of the shares will be held by English institutions. That doesn't matter. What is important is head offices.

''The more head offices you have, the more prosperous a country will be.''

The Governor believes he is leaving a Scottish financial community which is generally in good shape. But he believes Scotland's fund management industry as a whole was slow into the pension fund market - citing this as his one ''regret''.

''The Scottish banks are clearly in very good order and probably looking more successful than they have ever been,'' he says.

But, on fund management, he says: ''I think the weakness there has been that the Scottish fund management groups were largely built around. . .managing investment trusts. The Scottish investment trusts did an excellent job of managing money from 1870 to 1980 or 1990. In a way it was a good life running investment trusts - it was a way of life.

''I think the Scottish fund management groups got less aggressive and less entrepreneurial about catching pension fund business than (their competitors) in London were. . .With the wisdom of hindsight, that was not terribly clever.''

Bank of Scotland was forced two years ago, following a management crisis at its former Dunedin Fund Managers subsidiary, to sell its 51% stake in Dunedin to Edinburgh Fund Managers.

Sir Bruce says: ''If it (Dunedin) hadn't been so totally investment trust-orientated, then we might have taken the risk of buying in the 49% we didn't have, as opposed to selling (our stake) on. One obviously couldn't say at the time but the fact that it was so dependent on investment trusts, which is a static or declining business, made it more difficult to be bold.''

Sir Bruce, who has estimated the chance of Emu failing at nearly one-in-three, describes the hard-fought compromise deal whereby Wim Duisenberg of the Netherlands will have to split his eight-year term as President of the European Central Bank with France's Jean-Claude Trichet as ''sad and unnecessary''.

And he believes Emu's success or failure hinges on France.

''If France can have the courage to alter its labour laws, create mobility of labour and grasp some of the Anglo-Saxon business disciplines, then France will live with the extra discipline of the single currency and the single currency will work,'' he says.

''If France doesn't make some of those moves in the next two or three years, then tensions may arise and the jury is out again.

''I would like to press the fast-forward button on the video.''

After looking at expansion opportunities in North America, Continental Europe, and Australasia, Bank of Scotland bought Countrywide Banking Corporation in New Zealand in 1987.

Eight years later, it bought Bank of Western Australia (BankWest), having failed in 1987 and 1989 to buy struggling US banks.

City analysts were sceptical about BankWest and many remain of the opinion that its worth has yet to be proven. And it is still difficult to see how BankWest, focused almost entirely on Australia, will gain its desired foothold in Asia.

Sir Bruce says: ''The interesting thing from the point of view of long-term shareholders is that it gives us an entry into the Pacific Rim and Asia. At the moment, Asia has got its problems, slightly unexpectedly.

''I would love to press the fast-forward button on the video, as it were, and go forward 20 years and find out what happened. It is really in 20 years' time that one can make a judgement as to whether this really was a good move or not. I believe it will turn out to have been a very good move.''