A company man

31 January 2011 | By Robert Thickett

In the second half of last year Lloyds Banking Group took a lot of flack from the intermediary sector. Amid the usual moans about dual pricing were complaints that brokers were being kicked off the lender’s panel without being able to put up a proper defence, and the bank’s restrictions on interest-only and buy-to-let criteria.

When Nigel Stockton, the former director of mortgage sales at Lloyds Banking Group, quit rumours were rife that this was a sign the UK’s biggest lender intended to turn its back on intermediaries.

It was into this hostile environment that Mike Jones was brought to replace Stockton as mortgage sales director in October 2010. Jones is a one-company man. He has worked for Lloyds for 26 years, joining in 1985 on the bank’s graduate scheme straight from Cambridge University where he studied chemical engineering..
“I worked in the bank’s branch network until 1992 and it was seven formative years doing anything that needed doing in a branch which is helpful even today,” he says.

“I was a mortgage adviser, a financial adviser, a bank manager, I did cashiering, I was a standing orders clerk - you do everything.”
To this day he says he understands what it means to work in a bank branch.

“It’s a great life experience,” he says. “And in a way it’s humbling to be able to look back on that and think I can put myself in people’s shoes.”

From there he was appointed lending products manager and for three years was in charge of Lloyds Bank’s mortgages, loans, overdrafts and credit cards. In the final year there he was also heavily involved in the merger of Cheltenham & Gloucester and Lloyds TSB.

“We had a mortgage portfolio of £6.5bn which is tiny in the world of today,” he says. “We were in an environment of negative equity in 1992 and just coming out of a recession and Lloyds created the first negative-equity product.”

As Lloyds group revealed last week, it is launching a similar product on February 2 to cater for today’s borrowers in negative equity.
The Second Steppers scheme will allow borrowers who are in negative equity of up to 120% LTV to move to a property of the same value, buy a bigger home or downsize.

Jones admits Lloyds didn’t do a huge amount of business in the 1990s with it but it created a halo around the rest of its products and put the lender on the map for mortgages for the first time.

“The big thing that made a difference to our business was that we effectively entered the fixed rate market which was exciting and the first 25-year fixed-rate mortgage was launched by Lloyds under my watch,” he says.

After his three-year stint he spent another three in the bank’s treasury department in 1995. In 1998 he was made executive assistant to the group executive director for wholesale national banking at Lloyds TSB.

Then in 2001 he was promoted to retail network director for Lloyds TSB, managing the 185-strong branch network in Scotland and some 2,000 people. Finally in 2005 he became head of the bank’s branch network in the Midlands, managing about 500 branches and 6,000 people - which brings us up to 2010 when he took on Stockton’s role.

Jones is clearly steeped in the operation and workings of Lloyds’ direct branch sales forces so he was a controversial choice for the intermediary market. Many were concerned this was a sign that Lloyds group was turning its back on brokers.

But although he took over Stockton’s role and job title, in terms of how their jobs function there is a pivotal difference.

“Stockton managed the intermediary, telephony and internet businesses,” he says. “Branch mortgages are sold through the branch networks - and that remains the case - but his interest stopped at the branch network so he didn’t have anything to with that.

“With my background, unsurprisingly, I have a healthy interest and am accountable for what happens in the branch networks but I’m not responsible for it. So somebody else does it, but it’s part of my responsibility that they do it well.”

His role, he argues, is to provide balance to Lloyds group’s mortgage distribution and he believes the branch distribution of mortgages can be improved, with Halifax and Bank of Scotland working better in this field than, say, the Lloyds TSB side.

“What I bring to the job that not everyone would bring is a long history of working in the group and branch networks to understand some of the reasons why we’re not as good as we could be in that area,” he says. “So it’s about making us work more effectively in our branches.”

What has worried brokers is whether this will lead to a drop in the percentage of business going via brokers. In the wake of Stockton’s departure there were concerns that Lloyds group would stop giving brokers proc fees.

And while it did reduce proc fees, the lender announced the move in the same week that Barclays and Nationwide had the same idea.

People also claimed to have seen secret plans outlining the lender’s long-term withdrawal from the sector, all of which Stockton himself was only too happy to dismiss as “total garbage”.

But Stockton did also predict that the intermediary and branch mix could even out at 50/50 in percentage terms.

On that topic Jones categorically says it is not part of his plan.

“None of this is binary and black and white, it is not yes or no, it’s how grey is grey,” he says.

“We can do better through our branches than we are today. We can do more business more effectively and deliver it better to people who need mortgages.”
But he is positive about the role brokers have to play in volume distribution. There is only so much capacity in the market, he says, and even if Lloyds group does a fantastic job improving its branches, intermediaries have a far bigger role to play.

“In 2011 we expect the mortgage market to be similarly sized as in 2010 and our part of that to be a similar size as well,” he says. “We expect to lend roughly the same amount as last year and to loan a bit more through our branches and our direct channel. Critically, if the market is actually bigger this year the extra is going to have to come via the intermediary sector.

“We’re in a world of 60% intermediary, 40% direct and in that respect we are actually identical to the market as a whole. If we move several percentage points one way or the other that’s all it’s going to be this year.”

By the same token, while dual pricing is clearly evident, he says that in his experience the greatest elasticity you get from price is actually in the intermediary market.

The benefits of broker distribution were demonstrated to him within weeks of taking on his new role when BM Solutions launched two reduced buy-to-let products for one week only at the beginning of November.

“What we did with BM Solutions and the one-week sale shows just how well brokers can respond to attractively price products,” he says. “You can never get that leverage from branches so there is a balance to be struck.”

On the buy-to-let product sale via BM Solutions, when he took on his main role, he admits some of the criteria changes worried him, in particular the decision to restrict the number of buy-to-let properties borrowers had across the group to just three.

The concern was whether a cap of three in reality meant a natural cap of two as borrowers avoided maxing out their limit? The early evidence is that this hasn’t happened but he happily concedes the recent sale put Lloyds group back on the map in terms of buy-to-let.

The buy-to-let market in 2009 was about £8bn and figures for the first three-quarters of 2010 indicate a similarly sized market last year.

Buy-to-let represents a significant part of Lloyds group’s mortgage portfolio but, as Jones points out, of equal importance is the fact that it represents a large part of the buy-to-let market - possibly too large a part. Many in the industry estimate that Lloyds group is doing the majority of lending in the buy-to-let sector.

“That’s not a particularly healthy place to be,” he says. “People talk about how good it is to have competition and in the buy-to-let world I believe that is absolutely true.”

The two main players in the buy-to-let market are Lloyds group and Nationwide, with a bevy of smaller players making up the rest. Mortgage Strategy revealed before Christmas that Santander was eyeing the sector and Jones argues that this would be healthy and Lloyds group would like more competition.

“We and Nationwide have a large share of the market and we would like the market to be bigger as it would allow us to have a more comfortable participation level,” he says. “The point about the product sale was that it had been a difficult month in the buy-to-let market and we wanted to make sure people knew we were continuing to participate.

“What it’s done is reset the bar in terms of the amount of business we get. It did its job at the time but I am sure there will be reasons why we will need to do it again. We recently launched some buy-to-let products and they have been well received. Business levels are already encouraging.”

However, even with more lenders in the buy-to-let market Jones says he suspects underwriting restrictions are the right way to go.

The other area where Lloyds group has led the market is the underwriting restrictions surrounding interest-only.

The Financial Services Authority recently hit back at allegations that it was placing pressure on lenders to restrict interest-only, countering that any changes had been directed by lenders themselves, not the regulator.

Jones says the decision was not driven by concerns about its current lending but more by how future regulators may choose to look back at the basis on which it has lent. In that respect, he says, it has been the sensible thing to do.

“You can’t be in our business without a long memory and you look back on the endowment issues of 20-odd years ago, when at the time people did what they thought was right and with the benefit of hindsight were told they hadn’t.

“If we do interest-only lending we want to be confident that nobody will come back to us in 25 years’ time and say that we said it would pay off and it’s our fault it didn’t.”

His view of the Mortgage Market Review is that some parts of it are sensible but others he describes as odd and worrying.

“I think it’s a shame the approved persons regime has been deferred because I think that is one of the elements of the MMR that is constructive - partly in terms of the professionalism it would give the industry,” he says.

“On the other hand, some of the other restrictions around affordability are beyond what is rational and will damage the market.”

But the topic that is causing the most widespread concern is the brokers being booted off the Lloyds group’s panel.

A number of brokers have contacted Mortgage Strategy to describe how they had their agencies removed but were struggling to get any feedback from Lloyds group about why.

Heads of networks were also concerned by the number being removed from its panel and there did not seem to be anything they could do about it.

“I’ve read some of the submissions sent in to your magazine and followed them through personally to find out what was going on,” says Jones. “There’s often a complicated story behind some of these things. It is not in our interest to take anyone off our panel, in the same way that it is not in our interest not to do business with brokers. We would like to do business with them.

“It’s a tragedy if someone isn’t able to do business with us but can with someone else. It is not a decision we take lightly.”

He also points out that when comments are anonymous it makes it difficult to find out what is going on or help the brokers affected. When he investigates individual cases, he says it normally comes down to the place where they previously worked or a history of things that leads to concern.

“Ultimately you would only put this down to a combination of either fraud or the quality of business and I think the important point that comes out of this is that we do get some of this wrong,” he says. “But we have an appeals process and a number of brokers come back on as a consequence of that and are exonerated. There is a two-way process that leads to that.”

To be fair to Jones and Lloyds group, after the flurry of letters from brokers getting kicked off panels, a number of people in the industry have told Mortgage Strategy that part of the problem has been the failure of brokers to be honest and to see the mortgage process as a game to be won against lenders. One example given by a major distributor was the case when a broker ticked yes on an application form asking whether they had seen the client when they hadn’t because the client was on the other side of the country.

This type of behaviour leaves brokers and lenders vulnerable to fraudsters and is the reason why some have been removed from lenders’ panels. But Lloyds group continues to be hampered by what it can say about the panel removals. Jones maintains that if it is about fraud it can be difficult to explain to individuals where the lender’s suspicions originated.

“I followed some cases and in some I feel comfortable with what was done and there were others where I think we were right to change our mind because someone helped us to make a better decision,” he says.

It has clearly been a tough year for Lloyds group and it has taken more than its fair share of criticism. But the rumours that it was turning its back on the intermediary market have been proven wide of the mark.

Even with the UK’s number one lender’s plan to fine-tune branch distribution it continues to espouse the philosophy that to be big in mortgages it will have to be big with intermediaries.

 

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