The past few weeks have seen merger activity in the lender sector pick up and hit the headlines, with no less than three deals being announced. The moves see Paragon and Britannic Money come together, Portman and Staffordshire Building Societies merge and the Derbyshire and Clay Cross Building Societies join forces. All are understandable in terms of product matches and creating efficiencies for future business, although none have had time to prove themselves. The same is true of the Britannia subsidiaries’ merger which took place between Platform Home Loans and Verso earlier in the year. It was claimed somewhere in the region of £200m worth of business would immediately be added on to the books, as the business that was previously being turned away was taken on in the new underwriting environment. We will have to wait for financial figures until we see how successful it has been.
The main issue here is how many more of these deals lie in the pipeline, and what they will mean for customer service and choice further down the line. Other financial services markets such as the insurance sector have been through large-scale merger and acquisition periods and, in many cases, the result has been a loss of service caused by merger ‘hangovers’ where integration strategy, and communication, have not been sufficiently planned.
One of the major worries for smaller building societies is that the number of intermediaries may lessen dramatically under FSA regulation. Most societies conduct in excess of 50% of their mortgage business through intermediaries, and any drop in their numbers will be a major concern for future distribution. Coupled with the competitive nature of the market, it is hardly surprising that many are looking to the options provided by becoming part of a larger organisation. However, lenders and brokers considering such changes must be sure not to enter into something they later regret.
While many intermediaries are being enticed to join networks and others are considering leaving the sector altogether, regulation is also likely to bring new blood into the market as it offers a more professional and clear-cut career option to graduates and school leavers.
Those already in the industry must be sure to calculate exactly what the forthcoming regulation will mean for them, and how it will affect their business model and costs if they choose to continue. They should avoid simply being lured by others offering solutions to protect their own interests.
Regulation will change the market and how it operates, but it does not have to be the alarm bell that sends everyone running for the exits.
Edward Murray, news editor