Men on a mission

1 February 2010

It’s just over a year since Co-operative Financial Services, the consumer finance arm of the The Co-operative Group which also includes supermarket The Co-operative Food, merged with Britannia Building Society.

Combining CFS with Britannia created a business with £70bn in assets, nine million customers, 12,000 employees, more than 300 branches and 20 corporate banking centres. The merger also meant that CFS inherited Britannia’s intermediary arm Platform Home Loans.

Of course, change of ownership is nothing new to Platform. Since its inception some 20 years ago it has been owned by five firms.

But while the owners of Platform have changed the man steering the ship has not - its American managing director David Tweedy has been at the firm since it was created.

Tweedy joined Platform after a series of jobs in large US investment banks but his first love was ice hockey. After majoring in economics at Princeton University, rather than go straight into the world of work he took a year off to play ice hockey in Italy.

So the first and most obvious question is whether he wanted to go professional.

“If I was good enough I would have done,” says Tweedy. “Unfortunately, the truth is I was not quite good enough.

The specialist sector went into lockdown in 2008 so Platform became keen to change tack towards the mainstream

“I went back to the US, wasn’t sure what I wanted to do and decided to go into accountancy on the basis that it offered a broad education if I wanted to get into business.

“So I was with Price Waterhouse for about four years, then I went to work for Morgan Stanley in New York before transferring to London,” he adds.

It was while Tweedy was working in London that he decided he wanted to do something other than accountancy and law.

So he went to work for The Mortgage Corporation as an analyst doing financial, product and securitisation modelling. He then left TMC to join Bear Stearns Homeloans which turned into Platform.

After Bear Stearns the firm was sold to Lehman Brothers, then to a private equity house before Britannia bought it in 2001 for £55m with £550m of assets.

It was relaunched in 2003 after it was merged with Britannia’s existing intermediary brand Verso before the last change of ownership to CFS in 2009.

Platform’s website states that to date the firm has originated more than 160,000 mortgages worth some £16.36bn.

“It was the same company for that whole time but it went through a variety of business models and market approaches,” says Tweedy. “So I’ve had a role in Platform through five changes of ownership and five fundamental changes.”

After the merger we feel we are in a great position compared with other major intermediary lenders in the marketplace

By contrast, Platform’s director of sales and proposition Lee Gladwell made his career on the back of helping firms to deal with change.

After gaining a first in economics and social studies from the University of East Anglia, Gladwell joined insurance firm Commercial Union in 1990 as an account executive.

Over a 10-year stretch he had a number of roles at Commercial Union ranging from running its IT and changing the way its systems operated to reorganising its UK general insurance arm and working in its corporate partnerships division.

He then went to work for the corporate partnerships division of AXA, followed by a stint at Capita - again in business-to-business sales and marketing. He was also involved in setting up a financial services outsourcing business there.

After this Gladwell worked for the Chartered Insurance Institute, setting up its commercial division.

“My background is mainly in two things - change programmes and business-to-business partnerships,” he says.

“That was why Platform was interesting to me. It was seeing a lot of change but the mortgage market was also becoming about corporate partnerships rather than just product sales.”

Gladwell joined Platform in July 2008, some seven months before the merger between CFS and Britannia was announced in January 2009. But another big change was already underway internally at Platform - the firm’s expansion into offering mainstream products.

Platform’s reputation had been built on specialist lending from sub-prime to buy-to-let and self-cert. But when the market went into lockdown in 2008 it was eager to change tack.

“It’s been a busy period of change and it’s not until you look back that you realise how far you’ve come,” says Gladwell.

“We’ve changed our product set substantially with the launch of mainstream deals. We’ve also changed our business mix and that’s involved changing a lot of our processes and our underwriting mindset. Of course, we’ve also got a different set of customers now.”

Tweedy says that when the credit crunch finally hit the UK in 2008, Platform continued to lend, unlike most of its competitors in the specialist sector that left the market.

“But our criteria was different than prior to 2007 in the sense that we restricted our LTVs and withdrew from some of the more medium-adverse areas of the market in which we had a presence,” he says.

“We focussed on buy-to-let, self-cert and near-prime through most of 2008 and then later in the year we started to try to get a grip on the mainstream market. We tried to understand what demand was like and identify a gap we could fill to play in that sector.”

Platform launched a pilot range of mainstream products in late 2008 with what was then the network Thinc - now rebranded as Bluefin. This strategy gathered momentum in 2009.

With the number of lenders in mid-2008 being restricted even in the mainstream market Gladwell says that the firm spotted a clear opportunity. After Platform finished the pilot it worked closely with a small group of brokers to mould its proposition.

Platform continues to offer some specialist products such as a credit repair deal and it still offers buy-to-let deals too but Gladwell says the big opportunity lies in mainstream.

In line with its parent CFS Platform now has an ambition to become the most admired business in the broker sector

“The advice we got from our broker customers was clearly a capacity for mainstream lending but a lot of the lenders they were using either had service issues, were dual pricing or had been cross-selling products to their clients,” says Gladwell. “There was an opportunity for somebody new to come into that market with a mainstream product that managed its service levels, did not sell ahead of itself, did not dual price and did not cross-sell.”

So that’s what the company did throughout last year, and its website now carries a series of pledges such as that it will only offer products via brokers, will be transparent about its service and will not cross-sell.

Product design has been an important topic in the past year, with LTVs and rates heavily constrained as a result of the scarcity of funds. Mutuals such as Britannia have been particularly affected by this. So has the merger with CFS, a division of a much larger firm, improved Platform’s access to funds?

“It’s safe to say that the wholesale funding markets are constrained for all lenders - whether mutual, plc, independent or high street - so we have to live with the same constraints as the rest of the market,” says Tweedy.

“But the merger gives us access to a stable funding base as well as resources and capabilities which are broader and deeper than Britannia had on its own.

“So in terms of funding we are constrained like everyone else in the market but we now have access to a diverse organisation as well as a wider range of skills,” he adds.

“All this means we have a strong foundation for the future and puts us in a great position compared with other big intermediary lenders. We feel we can offer a competitive and exciting alternative for brokers.”

But the focus for Platform is not only providing products but also offering consistent service. It plans to substantially increase its lending but Gladwell says that what it does not intend to do is lend so much that its service levels fall.

“The important thing for us is that we maintain our position in the market,” he says. “We’ve had some positive feedback on our service recently and will continue to grow, but we’ll grow in a way that maintains our service position. In other words, we won’t just grow simply for the sake of hitting a pre-determined number.”

Tweedy highlights the importance of this point, not just for mortgage companies but for the financial services industry more widely.

“It’s no longer about numbers,” he says. “Financial services institutions are no longer operating a high volume, low margin type of model. We ill operate in a way that is prudent and delivers an appropriate return for the risk we’re taking.

“The point about prudence refers to funding - financial organisations now have limited access to funding so it’s less about volume and how much lending we are doing and more about how flexible we are with regard to scaling up or down depending on market conditions and the availability of wholesale funds.”

And that’s on top of making sure the company gets an appropriate return for the amount of capital it deploys in the business over time.

“So we are anticipating growing our lending significantly in 2010,” adds Tweedy. “But we’re not planning on going back to the sort of levels we saw in 2006 and 2007. Of course, that’s consistent across all organisations in the mortgage market.”

Gladwell says that this takes us back to the vision for Platform’s future.

“We’ve been talking in product terms and you’ve been asking how much specialist lending we have done, and where we stand with regard to mainstream deals,” he says.

“Our vision for Platform is clearly to grow but the most important thing for us now is to be seen as an intermediary specialist rather than a specialist in a particular product type.”

So does the company still regard itself as a specialist lender? On this point the pair are emphatic.

“This takes us back to the point about different market conditions,” says Tweedy. “Previously, Platform was a product specialist as were GMAC-RFC and Kensington Mortgages. We had specialist products or non-mainstream prime deals and did most of our business volumes via brokers because that’s the way the market worked. So from our perspective, back then we wanted to do specialist products.

“But now we want to be seen as an intermediary specialist so the focus is not so much on products as on working with brokers and helping them do their job effectively.

“So if mainstream products are in demand right now and we can get funding for them it doesn’t mean that in the future we won’t have specialist deals,” he adds. “I’d be proud to be good at buy-to-let or what you might call near-prime.

“But our focus is now on the intermediary rather than the product and that will continue to be the case.”

The other big change to hit not just Platform but the whole mortgage market in 2009 was the publication of the Financial Services Authority’s Mortgage Market Review in October.

Although the final review has yet to be completed the fallout from the consultation paper was the withdrawal of every remaining self-cert lender, with the regulator’s stated aim being to ban self-cert and fast-track mortgages.

Nationwide Building Society subsidiary The Mortgage Works pulled out of self-cert the week before the MMR was published and Platform followed suit in the middle of November. Beacon Homeloans became the last firm to turn the lights out on the UK self-cert market when it pulled out shortly after Platform.

So was Platform disappointed by the regulator’s decision to give self-cert the thumbs down?

“We weren’t doing a great deal of self-cert business,” says Gladwell. “It wasn’t core to our business model.

“It will be important for us to have a product for self-employed consumers but this has to be realistic and take into account what the FSA is looking to achieve. At the moment we are looking at how we can launch a deal that will be right for the self-employed market but meet the requirements of the MMR as they become clear.”

Lesley Titcomb, head of small firms at the FSA, argued at last year’s Mortgage Business Expo in London that the regulator never mandated for three years’ worth of accounts to be submitted for self-employed borrowers to get mortgages.

She argued that this had merely been a practice among some lenders and that the regulator’s aim is to work with the industry to agree what good practice means and so identify appropriate forms of income verification.

So has Platform had any more details from the FSA about what a product that caters for the self-employed might look like? The short answer is no, but both men argue that at this point in the consultation process this is appropriate.

“We’re in the discussion phase,” says Tweedy. “There are various conversations going on with the FSA on the subject.”

The Council of Mortgage Lenders has made its position clear on the subject of fast-track in the past week, providing evidence that arrears on fast-track business do not justify the need for income verification in all cases.

“I know that Santander UK and Lloyds Banking Group are working collaboratively to pull together information to demonstrate that the models they use for fast-track deals - combining credit scoring and affordability analytics - are as good if not better predictors than paper references for both employed and self-employed consumers,” says Tweedy.

“But we are still in the discussion phase and the rules will become clearer once we get through this.”

And Gladwell argues that other issues dealt with in the MMR such as proof of expenditure, affordability and the individual registration of brokers could bring genuine benefits to the industry if done in the right way.

“We all have an interest in the success of brokers and there are some obvious benefits around intermediary registration that would help to promote the advice market,” he says.

“One thing that would be helpful is a better definition of what is meant by advice. If we see broker registration, then a clear standard of advice would be useful.

“There is a big opportunity for the sector as consumers need advice more than ever, so to make clear what they should expect of brokers would be a good idea at this point,” he adds. “If done in the right way, things such as this could help the development of the intermediary sector.”

Looking ahead, the two men expect to see further consolidation on the distribution side. And inevitably, they believe that packagers are unlikely to make a speedy return to the level of influence they once had.

But what is their view of the longer term future for packaging?

“I guess it depends what you mean by packaging,” says Tweedy. “If you’re talking about the outsourcing of processes a comeback is pretty unlikely. Processing support was not really adding value because of the high degree of automation lenders now have with their customer-facing systems.

“In terms of packagers supporting distribution it’s possible but I don’t see this aspect coming back quickly either, or in the sort of scale it enjoyed previously.”

For the time being Gladwell and Tweedy are focussed on maintaining Platform’s proposition as they slowly expand into the mainstream market in 2010.

They also have an ambition to become “the most admired business in the intermediary sector”, as Tweedy puts it.

He says that Neville Richardson, formerly chief executive of Britannia and now chief executive officer of CFS, talks about CFS becoming the country’s most admired financial services business and not surprisingly Tweedy has a similar ambition for Platform.

“We may not always have every product at every price but we want brokers to think of us first,” he says.

After 12 months during which lenders have frequently fallen short of their promises this should be music to brokers’ ears.

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