Q. Carpetbaggers have been much quieter than in previous years ‘ are building societies winning the mutuality battle?
Five years ago the sector had really lost its confidence. Carpetbaggers were rampant and looked as if they were going to force some of the pro-mutual building societies to convert. They are much quieter now and, as a result, the societies have regained their confidence. We will continue to campaign for mutuality.
Q. PricewaterhouseCoopers (PwC) issued a report stating building societies’ costs could be reduced by sharing back office and support functions. Could this make the prospect of further acquisition less likely?
Big institutions do not want to acquire the smaller societies, particularly if they are in a niche such as the Ecology Building Society or the Catholic Building Society. But I endorse what PwC said. I do not think building societies will be gobbled up. but the major threat for societies is if they don’t run more efficiently. That would be a danger, and so there should be scope for more sharing between large and small building societies.
Q What are the other opportunities for the BSA’s members, outside of IT, as you see them?
Polarisation is a big issue for societies. It will be difficult to develop an industry solution. What we need to do is understand what our members want and where they see the opportunities. Should building societies be buying up IFAs, for example?
Q. How successful do you think building societies have been in exploiting the potential of the internet?
What Nationwide did, very sensibly, is keep its brand. But even some smaller societies are doing very well on the internet. Market Harborough Building Society, for example, has done well on the mortgage side. The Coventry Building Society has the domain name Remortgages.co.uk and they get a lot of business through that. I think the secret for building societies is to allow the customer to chose the channel they want to use.
What the banks have done is close branches, what building societies have done is retain the branches but allowing customers who want to use the internet to do so. Between 1995 and 2000, the mortgage banks closed 20% of their branches, building societies closed just 2.4% of their branches. What it comes down to is, are you serving the shareholder or are you serving the customer?
Q. What do you consider to be the main threats to your members?
Not keeping costs under control. Mutuals have a huge advantage in that they do not have to pay dividends, but if they spend that money inappropriately on the wrong staff, poor marketing, inappropriate technology and so on, then it is a threat.
Q. How does the BSA feel about the FSA’s decision to regulate mortgage advice?
We were pleased. One of the problems is that there is a lot of regulation surrounding mortgages. We were moving away from having a single regulator so it’s good news. There is also quite a debate around whether codes of practice are good enough. Should companies be shackled by regulation rather than with codes?
I worked with D M Julius on a review of the Banking Code. She reported that it was working in the interest of the public, but recommended there should be an independent review of the Code to suggest what should be in the next version. According to research by NOP, building societies are more compliant with the Banking Code than banks. I think this is because banks are more interested in satisfying shareholders, building societies focus on customers ‘ you can never afford to become complacent.
Q. Is there a danger that costs incurred through regulation could force some building societies out of the market?
I don’t think so. The FSA has promised to be proportionate and it has a small practitioners panel. Don’t forget there are 700 savings institutions in the UK that are smaller than the smallest building society ‘ the credit unions. They will be regulated for the first time by the FSA. These companies will have similar issues to sort out.
Q. Are building societies likely to lose further share in the mortgage market this year?
Every year since the conversions in the 1990s, building societies have shown new lending to be higher than their share of outstanding loans. Last year their share was 10%. I expect it to recover this year. One of the reasons for the fall was Nationwide’s decision not to offer big discounts to new customers.
They thought it was better to have a transparent common pricing structure whether for new or existing customers. It is an odd way for the mortgage market to behave to give the best interest rates to people who are the least loyal.
There are important issues of equity and fairness that Nationwide [the BSA’s largest member] was right to address. Eleven out of those 12 mortgage lending institutions who give discounts to loyal customers are building societies. They try to reward loyalty whereas the banks reward new customers. Nationwide lost market share as a result. It was important to brokers that it didn’t succeed because if it had done, it would have led to much less remortgaging. Intermediaries rubbished the Nationwide pricing initiative because their own business would have been affected.