Cleaning up

10 January 2011 | By Robert Thickett

Last year was marked by a series of dramatic personnel changes across the market - and nowhere more so than at Abbey for Intermediaries.

The announcement in March 2010 that Abbey’s managing director, Ricky Okey, was leaving started the year off with a bang and followed a series of staff changes within the UK mortgage arm of Santander.

This was at a time when Abbey was receiving widespread criticism about its service. Okey’s exit prompted some people to speculate it could be a sign that Santander was looking to turn its back on the intermediary market and plot a direct-only course.

Abbey was quick to rebut any such accusations with the revelation that 80% of its lending was via the intermediary market.

But doubts persisted, especially after it was revealed that Abbey’s new managing director Alan Mathewson did not have an inter-mediary background. Was this a sign that Santander was more interested in maximising lending via branches?

Speaking to Mortgage Strategy seven months after he formally took up the post in May, Mathewson is quick to stress that he and Santander view brokers as an important sector.

“It’s a unique market to the UK and Santander understands it is important,” he says. “What we get as a business is that if you’re going to be big in mortgages, to maintain our share and support the economy we need to be big among intermediaries.”

Which is not to say that it doesn’t want to grow the direct channel as well - he says Santander wants to grow in both.

And there is a recognition at senior level in Santander that if it wants to achieve the same dominating mortgage presence in the UK as it has in other countries, it has to do that via brokers.

“Growth on both fronts is Santander’s strategy,” says Mathewson.

His background is primarily in direct distribution channels. He was raised in St Andrews and after leaving school in 1986 he started at TSB, rising up the ranks before jumping ship in 1995 to Abbey, where he took up the role of regional training manager.

But he also has experience in setting up and maxi-mising new distribution streams. Between 1998 and 1999, as head of in-store banking, Mathewson helped set up a supermarket banking arm with Safeway, as it was called prior to its takeover by Morrisons.

The strategic partnership between the supermarket and Abbey resulted in 35 in-store branches, that were branded as Abbey.

“It was something that Walmart in the US was doing in a big way and was probably ahead of its time,” he says.

“That was at a point when Abbey was going through a difficult period and it was focussed on convenience retailing. When you went to do your weekly shop you had the convenience of doing your banking at the same time.” The scheme’s 35 branches between Aberdeen and Plymouth performed well, he says, but an internal restructure meant that what was essentially a specialist business was devolved and integrated into Abbey’s retail business.

“You can imagine if you’re a regional retail manager and have 15 branches and one of them is a Safeway branch where staffing levels are different and you’re having to keep the store open until 10pm - it becomes difficult,” he says.

“And if it’s one of 15 branches and it’s a developing branch, you’re probably not going to give it the time and attention it needs. Also, that was a time when Abbey was distracted and going through a difficult period.”

It was a tricky time and the former mutual seemed to be trying anything to reinvigorate itself, in-cluding at one point a washed out pastel colour scheme for its logo.

When Santander bought Abbey in 2004, Mathewson says the change was immediate.

“Santander understands the basics of banking from balance sheet management, margin management, risk management to cost manage-ment,” he says.

“Some 85% of Santander is focussed on retail banking - that’s the bit it understands well.”

Mathewson continued to take on new roles in the rebooted Abbey and in 2007 he was charged with setting up a bancassurance arm.

He grew the business to 1,100 advisers in 1,400 branches, becoming the UK’s largest bancassurer with a 23% market share. Part of the division’s rapid growth was due to the fact that Santander bought Alliance & Leicester and some Bradford & Bingley branches so it inherited around 300 advisers, but it was also actively recruiting.

“In bancassurance terms, we’ve got broadly one adviser per branch,” he says.

That was the sector Mathewson was involved in before he took on the dual job of managing director of Abbey for Intermediaries and Private Banking in May last year. He has experience of setting and implementing disparate distribution strategies and making them work.

So with the fresh pair of eyes he brought to Abbey for Intermediaries, did he think the criticism being hurled at it by mortgage brokers over its service levels was justified?

“Absolutely - in the intermediary market particularly, there is no doubt,” is his matter-of-fact response.

He says that after talking to key accounts and brokers in the first couple of weeks it became obvious that the biggest issue that needed fixing in Abbey’s intermediary business was service.

“Part of that was a legacy from when we went from 12 regional sites to two super-sites,” he says. “We’ve got one super-site in Glasgow for packaging, processing and underwriting, and then we have the telephone site in Manchester.

“But it was clear that the number one priority was service and one of the things that I did early on was get the right people and structure in place.”

Mathewson has separated Abbey for Intermediaries’ telephony BDMs and field BDMs - the latter are managed in one way and the former, in Glasgow and Manchester, are managed through another. In order to manage these two different teams he went shopping for new talent.

“To run the telephony sites and the 60 to 65 telephone BDMs I have hired a guy called Brad Fordham, who’s got good knowledge of the mortgage market,” he says.
“And to run our field force of around 40 BDMs I’ve got Jeremy Duncombe, who’s got a strong intermediary market background. The blend of having the internal mortgage and the external intermediary market leadership managing the individual functions but working together was important.”

The other thing he did immediately was set up a risk and service committee, where the chief underwriter, head of operations, heads of marketing and the BDM and telephone BDM heads meet once a fortnight with Mathewson to identify the top issues Abbey is facing.

He says these meetings have resulted in a number of measures such as a service quality team, which he describes as an escalation process. If there’s a problem with a case or it’s not moving forward at the right pace, the committee can deal with it.

He has also boosted Abbey’s underwriter numbers to more than 100 and all BDMs have access to them up to senior underwriter level.

“If it’s a complex case they can talk to a senior underwriter, which has been important,” says Mathewson.

“There were 40 things we used to ask brokers to send to us by fax or post but now we take the information over the telephone, which is just making it easier to do business with us.

“It’s not perfect but if you look at our service scores, and we do an external survey every single month, we’re in the pack with other lenders, whereas in April/May last year we were at the bottom.

“So we’ve seen application-to-offer times go from 14 days to nine days, which is good but we can still improve,” he adds.

Anecdotal evidence from the comments left on Mortgage Strategy’s website recently also looks good.

“There has been massive improvement in consistency of service and quality since the super-site started,” broker Simon Murray commented at the end of last year.

“I’d never thought I would say this but package a case correctly and there is a decent chance of getting an offer within two weeks.”

Such praise should not to be sniffed at as brokers have not been shy about spelling out which lenders have dished out bad service over the last couple of years.

Abbey has kept lending through the downturn, with its appetite for mortgages continuing to grow. As of Q3 2010 - the full-year figures are not out until next month - it had completed some £19.2bn in gross lending for the year and Mathewson says the full-year figure for the intermediary market won’t be far off.

“The message from our last results was that we’re supporting the economy,” he says. “Lending is up 23% and we’re funding one in five mortgages. We’re growing in a prudent way so our non-performing loan ratio is 1.36% versus a sector average of 2.17%. We’re lending, we’re doing it prudently and our loan-to-deposit ratio is 124%, so for every £124 we lend we bring in £100 in deposits.

“On top of that, we’ve got a good funding position so the overall story from the recent results was a positive one,” he adds.

Looking forward to this year, he says that despite the uncertain economic outlook Abbey will want to continue to lend a similar amount in 2011.

“In terms of the economic outlook there are some negatives and positives,” he says. “There’s no doubt the next 12 and 24 months are going to be challenging - we see interest rates remaining stable until the end of this year, nudging up to around 1% to 1.25%.

“House prices were down 1.25% in 2010 and we’re predicting broadly the same this year with a similar pattern in the mortgage market. But while the economic conditions are challenging, we’re going to continue to support the market as the UK’s number two lender.”

While offering a mainstream range, Abbey continues to look at other sectors such as buy-to-let, as Mortgage Strategy revealed towards the end of last year.

Buy-to-let is a market it hasn’t been in since it pulled out in April 2008. Mathewson says buy-to-let as a segment of the market was between 5% to 10% in the first half of 2010, and the outlook was even more positive in the second half of last year.

There are predictions that buy-to-let could account for between 10% to 15% of the market.

“What we’re looking at now is non-professional landlords,” he says. “When I say non-professional I mean landlords with one, two or three houses, landlords who may not be able to sell their house and end up doing a buy-to-let or inherit a house from their family - we’re looking at that segment.”

With the booming rental market, reports of sealed bids and even gazumping as tenants compete to secure the best properties, the appetite for buy-to-let certainly seems to be growing.

“No decision has been made but that’s something we want to look at to support the sector,” he says.

“It’s part of the company’s DNA - we constantly review things, we constantly look at the market but the model is a sort of mainstream, plain vanilla model.

“I went to a Santander AGM in Madrid and the chairman was so proud of this that he announced that the risk committee met 99 times last year in meetings lasting more than three hours.”

By the same token, he doesn’t see the changes set to be brought in by the Mortgage Market Review as a threat to future lending.

“We support most of the principles within the MMR so if you take affordability as the first principle we already stress-test on a capital and interest basis anyway and, to a degree, we’ve been MMR-proofing the business for some time,” he says.

But he argues that both interest-only and fast-track do have a place and is keen that the regulator listens to lenders, brokers and trade groups when making its final decisions.

While the personnel changes a year ago at Abbey are a distant memory, a spanner was thrown in the works towards the end of last year with the shock announcement that Antonio Horta Osario, chief executive of Santander UK, was leaving to join Lloyds Banking Group.

Mathewson says Horta Osario’s decision to move to Lloyds was a big disappointment.

“We’ve got a strong team in the UK and it’s disappointing to see Antonio go because he’s done an extraordinary job here,” he says.

But the fact that Ana Patricia Botín is his replacement is significant, he says. The daughter of Emilio Botín, executive chairman of Santander Group, her previous job was as chief executive of Santander’s Spanish bank Banesto.

Ana Patricia was 38th in Forbes magazine’s list of most powerful women in the world for 2010, ahead of super-model Heidi Klum at number 39 and Queen Elizabeth at number 41. And he points out that Horta Osario worked under Ana Patricia when he was recruited by her father from Goldman Sachs.

“She was his boss for maybe six or seven years and ran Banesto, which is a successful bank,” he says, reeling off a list of awards that Banesto has won over the years. “So I think it reflects that Santander recognises how important the UK market is.”

With Santander now a major player in the UK mortgage market, hopefully it will be able to improve its service levels over the next year. Rumours are rife that it has just pipped Lloyds Banking Group to become the biggest intermediary mortgage lender for 2010.

If this proves to be the case, we could see a whole new market dynamic starting to emerge in the years ahead.

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