Ascending star

5 July 2010 | By Robert Thickett

When future generations look for a firm whose fate sums up the credit crunch and its underlying causes they’ll be hard-pressed to find a better example than Lehman Brothers.

The investment bank’s collapse on September 15 2008, the biggest bankruptcy in US history, sent shock waves around the world and resulted in a global downturn as everyone realised that Lehmans fell into the category of ’too big to fail’.

With the company having run out of steam, its administrators quickly got to work selling off the bits that were salvageable such as its US investment and trading divisions.

Lehmans’ three UK brands - Southern Pacific Mortgage Limited, Preferred Mortgages and London Mortgage Services - had pulled out of the market long before Lehmans went under.

This left its servicing operation, Capstone Mortgages, which continued to service the mortgages of the three brands. And incredibly, despite the turmoil of recent years the company is still around, and from today is rebranding to Acenden as it throws its services open to the wider market.

So when Mortgage Strategy met Acenden’s chief executive officer Amany Attia and commercial director Martin Frazer, the first question was - what happened to Capstone when Lehman collapsed and how was it that the firm survived against the odds?

“When Lehmans went under Capstone never went into adminis-tration,” says Attia. “On its own Capstone was financially sound and viable. The administrators initially looked at selling all the businesses including Capstone and a number of assets, and asked me to work with them on that. They ended up putting the businesses up for sale and received a lot of interest.”

At that point Capstone had about 90,000 accounts, with around £8bn worth of servicing assets. Capstone’s management team, headed by Attia, tabled its own business offer and management plan, and the administrators liked this so much that they decided that there was more value in keeping Capstone and trying to grow it rather than sell it.

“Originally, it was going to be a full management buyout but the administrators decided not to do that because they thought there was a lot of upside,” she says. “So they allowed a version of a buyout in which the management retains a significant minority stake in the company.”

Attia has some 20 years’ experience in the securitisation industry. After graduating from Yale University she joined Citibank’s asset-backed securities division in the late 1980s, securitising the firm’s credit card assets and a small amount of mortgages.

She spent six and a half years at Citi and then moved to Lehmans where she worked in its mortgage and ABS groups until 2001. Then in 2001 she came to London to head Lehmans’ mortgage and securitisation business in Europe.

Frazer, by contrast, has been in the UK mortgage market for 30 years. After school he joined his local mutual, Burnley Building Society, which was subsequently absorbed into Abbey. He went on to work for a number of societies, principally in sales and branch work before a 20-year stint with the Scarborough Building Society group where he was commercial director.

In this role he ran the branches and income-generating parts of the society and also, more importantly, North Yorkshire Mortgages, the asset trading company, and SMS, the third party administration arm of the group.

When Scarborough merged with Skipton he spent a year with the latter’s mortgage servicing arm HML before joining Capstone in February this year.

While the administration estate of Lehmans holds the majority stake in Acenden, its people, facilities and IT infrastructure are independent, including its board of directors. The only asset the administrators hold is the majority shareholding.

In the current climate, the firm clearly expects there to be an appetite for the services it is offering.

Acenden is going head to head with the likes of HML as it opens up its services to other companies. Previously it was a closed shop concentrating on servicing the assets originated by Lehmans. But what Attia and her team have been doing for the past two years is reorientating the business to become a third party outsourcer, which, she says, is why the market hasn’t heard much from it.

The firm has a new servicing system which replaces two legacy systems. This has increased its scalability as well as its ability to take on new projects.

“The new system has enlarged our capacity almost three times,” says Attia. “We hired management personnel such as Frazer and a few others who added to the depth of our talent pool. We also improved a lot of our data and reporting - I noted that there was a need for this in the marketplace while I was at Lehmans.

“Somebody needed to deliver good accurate data in a timely way so we’ve spent a lot of time, money and energy in the past years making improvements in that regard.”

Despite the fact that its parent group went under so spectacularly and the UK economy was thrown into a downturn Attia says staff levels have stayed stable.

The firm has around 435 people working in its London and High Wycombe offices, and last October opened an office in Dublin as it expanded into Ireland. “We have lost practically no staff throughout this period, which is something we are quite proud of because it has obviously been a stressful time,” says Attia.

“But our people stayed focussed and performance, whether judged by loans or service, improved during that time. Going through the downturn made both staff and management stronger. Our employees have seen that by going through a period of turmoil we have become a better company.”

As a newcomer, Frazer describes the level of enthusiasm, commitment and ownership employees feel for the business as staggering.

“Considering the upheaval the market has been through - never mind the company - to hear our people talk about their commitment to the business and how they feel a sense of togetherness is phenomenal,” he says.

“Having been in the industry for a long time, I know it’s rare to find that sort of commitment.”

The company’s employees have also played a key part in its rebranding to Acenden.

When Frazer joined the firm one of the first discussions he had with Attia was about the name. The firm’s special servicing capabilities had been given the highest possible rating by Standard & Poor’s, it was expanding and relaunching its operation as a specialist servicing company for other firms, but did it want to do all this under its old name?

“We thought about whether it was right to do this under the Capstone banner which inevitably has associations with Lehmans, or whether it would be better to think about rebranding and relaunching the business,” he says. “In fact, that decision took about five seconds to make and we went down the rebranding route.”

So, working with a London-based brand consultancy the management team set about coming up with a new name. The consultancy spoke to employees at all levels - everyone from the people working the telephones and those dealing with customers right up to senior management.
“The consultancy came back and told us it had discovered that our business was all about enthusiasm, dedication, specialisation, knowledge and the development of knowledge,” says Frazer. “It said it was about building relationships with customers and helping to find solutions for them. We already thought our business was all of those things but were reassured to hear that this was the case from an outside voice.”

That led the team to start thinking about a new name.

“The name Acenden is a derivation of ascend and forwards, upwards and onwards - the kind of imagery that emerged from discussions with our staff,” says Frazer.

“We played around with a few options but in the end the name Acenden seemed to represent all the things we think our business is and will become better at.

“The name should represent the spirit, the ethos and the culture of a business, and that’s what we think Acenden does,” he adds.

Attia adds that what she noted from the brand consultancy’s work was the pride employees took in their jobs, whether that be taking a negative in terms of arrears and turning it into a positive or helping with more general mortgage problems.

And she says she sees that can-do attitude reflected month after month in the numbers. Today, Acenden has just under 80,000 accounts and a loan book approaching £7bn, compared with the roughly 90,000 accounts representing an £8bn loan book it had when Lehmans collapsed.

The profile of its average customer, as is to be expected with the types of clients that SPML and Preferred catered to, is broadly non-conforming, with some near-prime and light adverse. Most cases are mid to heavy adverse.

But where previously the company was inaccessible to other firms it’s now making its knowledge and experience available to the wider market.

“Strategically, we’re clear about what it is we bring to the market and the types of customers and lenders we think would benefit from what we do,” says Frazer.

If the staff at the Acenden have a can-do attitude a large part of this might have rubbed off on them from their CEO. Attia positively radiates good vibes, especially on the subject of arrears.

In response to a question on whether there’s much that can be done for clients in arrears she immediately fires back with a strident “absolutely, absolutely”.

“We’ve done a lot to help borrowers and our philosophy revolves around early and active management, because the easiest arrears to cure are early arrears,” she says.

“If borrowers are a month or two down they have a much smaller hill to climb than if they are six or 12 months in arrears. That’s why we try to work with borrowers at an early stage to come up with programmes they can afford.

“When you look at our early arrears borrowers over the past year we’ve been able to either have them maintain or improve their arrears levels in 80% of cases, which is terrific,” she adds.

“Even for late arrears borrowers - those who are beyond three months in arrears - we’re able to help or maintain arrears levels for 70% of our customers.”

The main way the firm does this is by carefully combing through borrowers’ incomes and expenses, but it has also set up a loss mitigation team that works with borrowers who meet certain criteria to look at ways on modifying their loans to come up with terms they can afford.

“We’ve done more than 5,000 loan modifications in the past year and on average have been able to save about £40,000 per loan,” she says. “That’s a pretty significant number. And in contrast to properties being repossessed it’s good for our clients, good for the people who own the loans and good for borrowers as it helps them to stay in their homes.”

Frazer says that what struck him when he joined the company was the degree of personalisation employed with every customer.

“We treat people as people, not as numbers,” he says. “We make contact literally within a day or two of a payment being missed - we don’t wait for a month before we contact borrowers in trouble.

A company’s name should reflect the ethos and culture of the business, and that’s what we believe Acenden does

“We employ a number of modes of contact with clients such as letters, but the first thing is always a phone call. We want to talk to borrowers and ensure they understand that we want to help them.”

Attia and Frazer argue that Acenden’s third party outsourcing system will give investors and lenders access to more information than ever before in terms of loan book performance. They say their business model offers the market something new.

“The servicing models that have existed in the UK until now have been outsourcing models which basically say that ’we can service your loan book cheaper than you can’,” says Attia. “It’s been predominantly about doing things a little bit cheaper and a little bit more efficiently.

“That’s valid and we think we can do things pretty efficiently too. In fact, we take nothing away from the model and are set up to achieve it, but what the credit crunch has taught us is that reviewing mortgages and the way you manage them does not stop on the day you make the loan - it never stops. “To control mortgage risk and achieve the value you want from your mortgages you need to be managing them right through the life cycle, and that’s what we offer,” she adds.

And if the securitisation market has any hope of coming back in a meaningful form, managing this type of risk will be integral. For the time being, with growth static in the mortgage market the securitisation of mortgage-backed securities remains depressingly thin on the ground.
But true to form, Attia is upbeat about the future of securitisation and sub-prime.

“Obviously, the market still can’t truly be called a market but there are some green shoots,” she says. “Everyone from regulators to issuers, lenders and investors want the market to get going again and it will, but all players are going to be much more aware of mortgage risk and how it is managed.”

In terms of the role regulators and politicians could play in kickstarting the market she admits that’s the question everyone is asking.
“Regulators around the world have a significant challenge on their hands because on one hand they’re conscious of the fact that they’ve been widely criticised for the crisis, and for what has been perceived by some as lenient regulation that contributed to the problems,” she says.

“On the other hand they want to promote lending, the securitisation market and funding, so they’ve got a tricky tightrope to walk. I’d struggle too if I was in their shoes, but if they don’t get it right we’ll all have serious problems.”

But Attia says she firmly believes that markets ultimately get it right, and that should include the reintroduction of sub-prime at some point in the future.

“The truth is that if you look at the sub-prime pools that have been created, about 80% are performing,” she says. “That means that eight out of 10 of those borrowers now have a foot on the property ladder.”

“So taking a chopper to the whole sub-prime sector is probably not the way to go. It’s more a case of where you find the boundary between what was excessive and what was appropriate.”

For the time being Attia and Frazer’s focus is on the successful launch of Acenden. The company is already servicing the loan book of an unnamed Irish bank and with its launch today it is looking to attract more.

The firm may have risen out of the ashes of Lehmans but the fact that it has survived in the face of such adversity makes this one survivor many in the market will be keen to watch.