Simon Knight may be at the peak of his career – chief executive of the country’s tenth largest lender, with one of the mortgage industry’s most technological platforms and the backing of one of the world’s largest financial institutions in General Motors.
Knight’s career to date can be summarised as a progression through most of the possible positions available in the mortgage sector. He has been variously a broker, packager, lender, international marketeer and now chief executive of GMAC-RFC.
The spark to his rise was probably joining Stephen Knight – who is no relation – at the packager Private Label in 1990. Within Private Label, he held positions including running the sales force, marketing, running the direct to broker offering and being joint managing director. During these years, it was growing into one of the largest packagers in the country, and Stephen Knight was growing his reputation as one of the most innovative people in the UK mortgage industry.
In fact, if there is a fly in Simon Knight’s ointment, it is that Stephen Knight is a hard act to follow. In 2005, he was invited back to the UK as managing director reporting to Stephen Knight, chief executive chairman, with the express intention of taking over at the helm.
Knight says: “It was a part of our initial discussion, I make no secret of that, but other considerations were if and how to come back to the UK. I had had a little boy and he was growing up with an American accent, and we needed to decide whether to come back or stay in the States. I was given an attractive offer to work in areas I had little experience in, such as mergers and acquisitions, running the profit and loss, new business and devising business strategy.”
He dismisses comparisons between himself and his predecessor, saying: “Stephen is fairly unique in the market. He led this company brilliantly for nine years, but although he is stepping aside, there is still a team of people running the business, the board and senior management – they made the company what it is today, and they are still here.”
In fact, the lender’s business strategy was devised by Simon Knight: “That plan clearly outlines where we want to be in a few years and identifies our goals in terms of markets, market share, profitability, and so on. We are already well on course with these plans,” he says.
GMAC as a lender is probably best known to intermediaries for its technology – most recently introducing the point-of-sale offer (POSO) into the market. Using this technological base, the lender has completed a case from initial inquiry to release of funds in three days.
Balanced approach
While GMAC may be able to complete cases in days, Knight is ambivalent about the general ‘need for speed’ attitude in the sector at the moment. “My personal view is that while there is a natural progress towards technology making things more efficient, with title insurance and automated valuation models, I am not sure that we are always going to want that speed. But it is having the choice that is powerful. We already have POSOs, and point-of-sale completion will be possible, but I do not think it is for everybody.”
While admitting that the rise in technology has allowed new entrants to the market, Knight is surprisingly sanguine about his company’s technology platform. He says: “It does not make any difference how good your technology is if you have no distribution. It is easier to compete as a start-up than if you have a hundred years of history. I have nothing but respect for those companies that build an infrastructure and enter the market successfully. However, companies like Edeus did it through getting those distribution channels.
“If you look at news such as HBoS bringing out POSOs in the New Year, the conclusion has to be that technology is going to get better and better. Technology will cease to be a marketing tool and will become a basic hygiene factor. The market is so competitive that firms need to look for efficiencies in order to compete – technology enables that.”
Competition in mortgage markets across Europe is also set to increase as more deposit taking lenders succeed in following Norwich and Peterborough’s Basel II accreditation, allowing them to operate with lower capital reserves. Although this will allow building societies to price nearer the top of the market, Knight sees this development as a positive thing for GMAC.
He says: “Basel II is going to free up a lot of capital in this market, mainly from the building societies, and they are going to be hungry to deploy that capital. They may give better rates on their mortgage range, but they will equally be hungry for buying assets. What GMAC does very well is trade our mortgages, so in that respect we see that as an opportunity.”
He adds: “The greatest change will be in the sub-prime and non-conforming markets, where the freed capital will allow these lenders into new areas of lending. Our analysis shows that Basel II will increase demand for our securitisations, we see it as a good thing.”
Having worked in the US for four years from 2001 to 2005, Knight still has a touch of the outsider’s viewpoint when assessing changes in the UK markets. One of the biggest in recent years is the rise of regulation and the continuing rise in the broker sector of mortgage distribution.
Knight returned to the UK in March 2005 and Mortgage Day came in November 2004. “For a while I was sitting around the board table and when I made suggestions, was continually getting told ‘you cannot do that’.” He laughs, adding: “I had a steep learning curve.”
Overall, he is a fan of regulation and the direction that the FSA is taking. He says: “The Americans are looking at principles-based regulation because of the way the FSA has been implementing it. So my sense is that the FSA’s regime is working, and I am particularly attracted to principles-based regulation, giving an outcome and allowing decisions on how to do things to the market. I think that innovative and forward thinking companies have a lot more flexibility over how they drive towards those outcomes than companies that prefer to follow a set of rules. It is good for us at GMAC.”
On Europe’s preference for rules-based regulation, and many intermediaries’ discomfort with principle-based regulation, specifically treating customers fairly (TCF), he says: “We have a green paper out on EU regulation but we spent millions hiring people, putting a structure of governance and processes in place and it seems to be working. I am not sure I would be in favour of bringing in a European set of rules for brokers.
“While it is probably principles-based regulation that is driving the brokers into the arms of the networks, if you look at the other extreme, you would still need people to check there was compliance if there was nothing but rules. The real test of a broker is how much of their business is by word of mouth and how much is repeat business. That is a very good measure of basic TCF. A sense of satisfaction, of getting a good product is an outcome of successful TCF.”
While he puts the rise of networks down to the increasing need for advisers to find a safe compliance harbour, he is also a fan of the networks in terms of their overall proposition. He suggests that the use of the networks is in fact retarding what would otherwise be efficiency driven consolidation in the mortgage advice sector.
He says: “Brokers are businessmen and women, who will work out what makes sense for their individual business. Just as the market is becoming increasingly competitive as a lender it is becoming ever more expensive to run a small business. If firms can get cover for some costs by going through a network, as well as the benefits of exclusive products and services, then that is probably a good thing. Whether there is a likelihood of a consolidation in the broker sector remains to be seen. The proposition networks are offering is pretty compelling.”
Overall, GMAC will continue its focus on the mortgage intermediary sector and Knight is particularly upbeat when discussing the rise of the independent mortgage adviser in the UK markets.
He says: “The interesting thing is that if you had asked me 20 years ago, I would have said that 50% of the market would go direct to the high street lenders. In fact, closer to 80% is now going to brokers. The real sea change in brokers’ favour has been the public’s move away from recognised high street names. People are a lot savvier now and actually expect to shop around.
“The public sees a lot more value in brokers nowadays, someone shopping on their behalf and working for them. Previously the value was in the name of the lender. The public only really felt safe with lenders that they had saved with and knew well.”
The US situation
Considering Knight’s four years at the coal face in US lending, when the subject of lender’ safety is raised the obvious next step is to ask his views on the US market’s troubles.
Looking slightly exasperated, Knight says: “We are interested in the US sub-prime market only because we want to know if the problems they have will occur over here, otherwise we rarely pay attention to it. The thing is that their products are different, their borrower base is different, and it is a completely different market.
“One facet is that it has a massive secondary market and the involvement of at least two government agencies. The differences are night and day. We do not do 100%+ loan-to-value sub-prime. We have seen constant house appreciation, due to a shortfall of homes. We have inward migration at a record high from Eastern Europe. We have a booming buy-to-let market.”
He points out that in the US people were very hungry for assets and market share, house prices were continuing to rise and people just kept on remortgaging and running up debt – they quickly ran out of equity.
He adds: “My old boss in the US once said to me when we were looking at marketing new products: “price hurts, but credit kills.” In other words, you can gain market share in two ways – you can shave the price of the product so you are more competitive, which hurts, or you can lend to anyone.”
GMAC of course has a significant exposure in the US. However, 60% of the US parent’s lending is mainstream. Of the non-conforming 40%, something like 60% is light adverse. “I think that this sort of ratio is pretty much standard across the industry, there is not too much exposure for lenders over there,” says Knight.
The US is, of course, all in the past for Knight – his future, for now, lying in the UK. For GMAC. Knight succeeding Knight is a case of business as usual.
Knight says: “As a company, we do not have a complex mission statement. We have a good team and a plan that we are absolutely locked into. We are on target to beat our numbers and are in good shape. My attitude is simple. If we look after our people, they will look after the customers.” n
