I’ve made no secret of my support for building societies. In the interests of consumer choice we sorely need the competition.
But the latest warning by the Council of Mortgage Lenders is a stark reminder of how societies could be on the edge of extinction.
CML members face a potential £319bn funding gap by 2014 when government funds from the liquidity and credit guarantee schemes will need to be repaid and there’s doubt over their ability to do so. As Moody’s recently pointed out, when these schemes are closed it is likely that smaller lenders will be forced to consolidate or fail.
Against the impenetrable market share of high street banks, unless we see a rapid agreement by the regulators over the use of mutual ordinary deferred shares or other innovations the demise of societies looks likely.
Last year society savers withdrew £7.6bn more than they deposited and societies paid back £22.6bn to the wholesale markets.
Santander UK took an 18.6% share of the market last year, attracting net deposits of £14.9bn. Barclays saw the number of savings accounts jump by 10% last year and Lloyds Banking Group has a 36% share of the market.
How can societies compete? I have always maintained that the market cannot recover without a resurgence of the capital markets.
Santander bought back parcels of mortgage and other asset-backed securities last year and in recent months we have seen two RMBS issues. This should return some confidence to the market, but will it be too little too late for societies?