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Slowly does it

Deutsche Bank approached Bill Dudgeon to launch DB Mortgages in 2005, pitching a low-risk entry to the specialist lending market. From four packagers in 2006 to 370 today, DB has thrived and is set to diversify, he tells Christine Toner

When Bill Dudgeon was tasked with launching a specialist mortgage lender for financial services giant Deutsche Bank in 2005, the competition could not have been tougher.

The bank was following in the footsteps of rivals that had already invest-ed in a range of residential mortgage lenders, so the pressure was on Dudgeon to provide an innovative offering for brokers and their clients.

Despite or because of this, Dudgeon, who was appointed managing director of DB Mortgages from the outset, can now boast the lender’s first 350m securitisation, a 200-strong sales team plus plans for a direct-to-broker proposition, as reported in Mortgage Strategy on June 4.

“We’re all knackered,” says Dudgeon. “It’s been quite a year.”

Presumably the pressure was less intense for Dudgeon and his fellow team members – Mark Bergin, David Parry and Paul Graham – given their collective breadth of experience.

The Fab Four, as Mortgage Strategy nicknamed them when DB launched, were instrumental in the creation of The Mortgage Business, the specialist lender launched by HBOS in 1989. Nevertheless, Dudgeon admits the launch of DB was daunting.

“I was leaving the biggest lender in the UK,” he says. “I’d been there since 1988 but lots of things happened in the HBOS group that we didn’t think were right for TMB, so I wanted to make a change.”

This included HBOS’ decision for TMB to suspend trading for several weeks in 2004.

“That year, HBOS had a business plan that said it wanted a certain percentage of self-cert and a certain am-ount of buy-to-let business,” says Dudgeon. “It involved TMB, Bank of Scotland and Birmingham Midshires pull-ing back.

“The management didn’t tell us what the plans were until April, but with mortgages, because a pipeline of business builds up that is going to complete, it’s hard to stop. You can’t just switch it on and off, so we were left with the only option, which was to stop lending. We came out of the market from July until early September.”

Dudgeon says the other members of the Fab Four also felt it was time to move on and had been in discussions for some time before leaving TMB.

“Deutsche then approached us in July 2005,” he says.

“It had looked at buying a couple of lenders but decided instead to grow an organic lender from scratch and want-ed us to be involved.”

This led to Dudgeon and the others approaching Nigel Stockton, managing director of HBOS Intermediaries, about their decision to leave.

Stockton allowed them to cut short their contracts with HBOS, providing they ensured a smooth handover.

“Nigel wasn’t happy but I think he appreciated the way we did it,” says Dudgeon. “We resigned at the end of August and were on gardening leave until Christmas, after which we were free to set up DB.”

Dudgeon admits Deutsche Bank’s backing made the decision to be part of DB’s launch relatively easy.

“It helped in the same way being part of the HBOS group helped TMB,” he says. “Brokers would ask who we were and when we’d say we were part of HBOS, it gave us gravitas.

“Although we’re called DB Mortgages, we’re part of the Deutsche Bank group and that helps too. Brokers recognise the parentage and how big the or-ganisation is.”

Deutsche Bank rivals that have already invested in the specialist market include Merrill Lynch, which owns Mortgages PLC, Freedom Lending and provides part of the funding for edeus, Morgan Stanley, which owns Advantage, and Lehman Brothers, which owns South Pacific Mortgage Limited, Preferred Mortgages and the London Mortgage Company.

And Rooftop Mortgages is part of the Bear Stearns group.

DB decided against a high profile launch, in keeping with its parent company’s low-risk profile.

“We could’ve gone for the big bang approach but wanted to get out there quickly with a simple system,” says Dudgeon. “Deutsche Bank is conservative and was keen for its reputation’s sake that we get it right.”

Accordingly, DB launched to only four appointed packagers in 2006. Just one year later, this figure has already rocketed to about 370.

Packagers are a touchy subject for Dudgeon after being criticised for allegedly shunning them while at TMB.

Charles Haresnape, the then managing director of Bank of Scotland Mortgages, was particularly vocal in his criticism that TMB was neglecting the packaging market at the Mortgage Strategy Mortgage Summit in Jerez last year.

But Dudgeon refutes the charge.

“At TMB we were definitely packager-focussed – some years I think 80% of our business came from packagers,” he says.

“When we exited the marketplace, some of the big packagers were giving us a lot of business. One in particular, Packager Association, was providing 100m worth a month.

“Our disappearance from the market didn’t go down well,” he adds.

Now under the management of Ni-gel Payne, TMB has established itself as a packager-friendly lender. So was Dudgeon and co’s departure the catalyst for TMB’s recognition of this allegedly neglected market?

“A lot of the stuff we thought needed to change, such as our dealings with packagers and the way we did business in a more general sense, has started to happen since we left,” says Dudgeon.

“I’m not saying it took us leaving for things to change but looking back, if HBOS had let us improve matters, we might have stayed.

“That said, by then it was too late for us,” he adds. “We had to go and do something different.”

For now, Dudgeon and his team will focus on launching DB’s direct-to-broker proposition – a controversial move given that it cuts out packagers.

But Dudgeon is keen to prove to packagers that DB is a lender not for turning, at least in terms of packager support.

“We’ve never hidden it from packagers that we were going to go direct-to-broker,” he says. “But packagers will find the system is built to complement them rather than cut them out of the chain.”

Accordingly, Dudgeon attributes the slow lead time to the launch of DB’s direct-to-broker proposition to the len-der’s desire to work closely with packagers and the complexities of perfecting its online technology.

To that end, once brokers have completed the decision in principle and Key Facts Illustration documents for a giv-en case through the proposition, they will be able to assign it to a packager of their choice.

The technology can also provide point-of-sale offers, although Dudgeon says it is not specifically designed to do so.

If brokers are happy with the DIPs and KFIs generated, they can instruct valuations and submit cases. And if these cases pass the credit score, instant offers can be made. If not, they can be passed on to DB underwriters.

“We didn’t see instant offers as a unique selling point when we entered the market and we still don’t,” he says.

“We see it as an important facility, which some brokers like and some don’t. We have focussed more on building the website and then the packager functionality and business around it.”

Dudgeon says DB is not positioning itself alongside edeus, which he thinks has gone down the route of instant on-line gratification.

“We don’t see this as one of our key points, otherwise we would have built our system specifically for that from day one,” he says.

DB’s website will be launched via a staggered distribution strategy, which it has yet to reveal, but Dudgeon says deals have already been signed with a mortgage club and an appointed representative network, with more to come.

So has all the work been worth it?

“To be honest, there haven’t been any mountains to climb,” he says. “We weren’t arrogant, just confident we could do it.

“Last Christmas, the four of us sat down together and discussed whether we’d done the right thing, but for me it has been exciting and there’s more ex-citement to come.”

Now DB is up and running, the only question remaining is whether Dudgeon and his team can maintain the momentum of their progress to date, given the cautious approach to the market stipulated by Deutsche Bank.

If nothing else, avoiding the pitfalls they encountered at TMB would be a good start.

And of course, this should be easier for the Fab Four to achieve given their experience of operating under a powerhouse parent.


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