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Change is the toughest challenge


The downside of your appointment as managing director of BM Solutions this summer must have been the brief to pull the plug on The Mortgage Business – a firm you had rescued from the dead back in 2005. How tough was it to say goodbye to 250 people who had grown the business with you?

NP: My emotions were mixed on the basis that some years ago we’d been through a rough patch and had closed the door to new business for maybe four or five months. We then came back into the market and weren’t seeing anywhere near the sort of volumes than we had done previously.

There was a lot of scepticism in the market at the time, particularly about me being brought in from HBOS. There was an idea around that I’d been parachuted in to shut it down. This was a common view among the journalists in the industry as well as brokers and packagers. Obviously that wasn’t the case at the time and we made a huge number of changes at the company to bring it back so it was fit for purpose.

The success of TMB over the past two years has been unquestionable and probably represents one of the biggest turna-rounds the market has seen in terms of an individual brand.

But the world changes and boy, the world has changed in the past 12 months to an extent I don’t think any of us could have predicted, and even the mighty HBOS is not immune from the downturn in the market.*

So it was a hard decision but a practical one we had to take to shut the doors of TMB. It’s probably one of the few examples in any industry of shutting down a business when it is at the peak of its performance.

In net lending terms, TMB did exceedingly well – it was a serious proposition when it came to service values and there was always a lot of loyalty to the brand, even in the dark days. But we had to take the decision anyway.

It wasn’t a nice thing to have to tell the team that we were shutting the doors because there were a lot of loyal employees in the business. But when we told everybody the news on that Wednesday in August, the next day they were all back at their desks. That is a real testament to the professionalism of the staff.

JM: And the closure – was it to cut costs or because you were attracting the wrong sort of business, or was it about the channels to market you were using?

NP: No it wasn’t about the channels thing. It was about being more cost-effective. It was basically a recognition that in the economic environment we are now in we probably didn’t need as many brands as we had.

Once we had decided we needed one brand less, the decision on TMB was a purely practical one – the equation was how easily it could be done compared with other brands and also how much cost could be saved.

Judging by the speculation that was going on in the press at the time of my appointment at BM Solutions, a lot of people expected what was going to happen. But many, particularly in the packager market, still expect me to bring some of the TMB flavour of supporting the packager market to BM Solutions.

JM: So will the demise of TMB create a vacuum in the packager market?

NP: It has hurt packagers, there’s no doubt about it. That said, they know – and I have gone on record as saying – that we’ll develop a packager proposition for the market.

Timing-wise, we weren’t able to do it when we announced the closure of TMB but we will be unveiling the start of that strategy by the beginning of October.

JM: Presumably, BM Solutions and TMB had different product ranges and there was a need to rationalise your offering now BM Solutions is catering for a wider market.

NP: There was some overlap on buy-to-let – specifically a buy-to-let product based on rental income. And there was also some overlap on self-cert but the main difference in the products was the distribution channels we used.

The difference with BM Solutions was that it had some sub-prime business and TMB did not have a sub-prime offering. TMB had the House 2 House deal which was a buy-to-let product based on the individual’s affordability rather than rental income. That was put on the system and launched by BM Solutions the Monday after we made the announcement.

There was also a self-build deal which was the only TMB-specific product in the HBOS range. Again, that has been built into the BM Solutions system and was launched on the same day. So product-wise, we now have a full suite of products in BM Solutions.

We were also able to take with us the packagers who wanted to transfer their relationships from TMB to BM Solutions. As I have said, the next stage starts at the beginning of next month when we will be unveiling the packager strategy within BM Solutions. That will be the start of a pretty significant development process for us. JM: Looking at your career, it’s been pretty high profile in recent years so what would you say have been your best and worst times?

NP: As far as the best moments are concerned, there have been plenty. There have been a lot of highs in the past two years. For example, I think that to have pulled off something like the Mortgage Strategy Packager Summit – which most people didn’t think we could do – was a special achievement. Packagers are a fundamental part of this market and it’s important that this is recognised.

Worst moments? Undoubtedly, the worst part of the job was doing what I had to do in the middle of August – the day I had to tell our people that we were shutting up shop.

There were some tough times in the early days too, because we had a high turnover of staff.

JM: Was that back in 2005 after your predecessor at TMB and a group of key executives decamped to Deutsche Bank to set up rival DB Mortgages?

NP: Yes, I think the record was 19 staff lost on the same day because the market was so competitive at the time. A lot of firms were chasing experience in the marketplace and we had to take some calculated risks to replace the people who left with new faces who maybe weren’t so well known in the business.

With hindsight, that period of change – despite the fact that some of it was forced upon us – was the best thing that could have happened to TMB.

JM: You mean it introduced new blood to the business?

NP: Yes, it brought a new focus to our strategy, and that focus was not only supported externally by the market but equally importantly, it was backed internally by HBOS.

Before that time, I think HBOS had struggled with the concept of TMB, what it actually did and what packagers were doing. What we did at that time helped HBOS to buy into the proposition.

JM: Did this constitute a rethink of the strategy that was in place when your predecessor Bill Dudgeon left?

NP: To me it wasn’t so much a rethink as a focus on the strategy. That process started for me with talking to the customers who still dealt with TMB, given that I had no prior history in the intermediary market,

And to a large extent they were saying it was a good proposition and it had a great reputation. They told me – it’s been through some tough times but focus on what it’s good at which is delivering niche products, primarily through packagers, with a high degree of people involvement rather than being systems-driven.

And taking those three things together – niche products, people, and packager distribution – we were able to put to-gether the model not just from the product end but also with the service pro- position to back it up.

We made a lot of promises in the early days and although not all of them came off the majority did. I think that as soon as that evidence came in that we werechanging things, the situation started to improve.

Don’t forget they had a huge choice of lenders – why should they give us their business over and above anybody else? We had to articulate the reasons why and deliver on them.

JM: But isn’t BM Solutions systems rather than people-driven?

NP: Yes, it is more systems-driven and the system is an excellent one. To cope with the business volumes we need, we have to be more systems-driven.

In fact, at TMB we would have put more automation around things like our House 2 House product and self-build deals, and we’re now delivering on that with BM Solutions. But there still needs to be the personal touch somewhere along the line. People still have to answer the phones and give appropriate professional answers and the BM Solutions team is good at that. The only difference is that they need to answer the phone less because the systems are so good.

JM: I know you are going to announce a proposition for packagers shortly but with DB Mortgages and now TMB disappearing from the marketplace, doesn’t this suggest that the future isn’t exactly bright for that sector?

NP: I don’t think the day of the packager is over. There are probably more lenders who have gone out of the market than packagers. Packagers probably represent the most entrepreneurial end of the market because a lot of those businesses are wholly-owned by the guys who run them. They will therefore adapt to the changing market conditions, and adapt quickly. There have been some who have gone out of the market and there could well be others but will this result in the demise of packagers completely? No.

Packagers are still a significant distribution channel in the marketplace and I think we are seeing a trend towards packagers being parts of a bigger associations or becoming parts of networks. As for standalone packagers, they will be few and far between – they will ultimately be a part of associations or networks.

JM: Returning to what you are doing at the moment, which I suppose could be described as recreating or redefining your business model, you’re doing this at a challenging time for HBOS and the economy generally. How difficult is it to build a model that is flexible enough to respond to an upturn in the market, should one occur?

NP: You’ve hit the nail on the head. The model we build – or move towards be-cause it’s not something that’s going to happen overnight – has to recognise that market conditions will get better at some point, and that point may well be 2010.

The fundamentals of the market are still there so the essence of our strategy is that what we put in place has to work today but more importantly it also has to be fit for purpose when the market starts coming back.

I doubt the market will come back to what it was 18 months ago but it will come back to something better than today. We don’t want to do anything in the short term that will not support the business in two years’ time. JM: Setting targets must be hard. What are the operational constraints on your business – funding or quality of lending?

NP: Funding is something we have to be very aware of.

JM: Can you give an example?

NP: Volumes – you’ve got targets which obviously sales people try to beat.

JM: So you have a limit on the value of the mortgages you write?

NP: I wouldn’t say we have a limit but it’s s something we can’t dismiss either. The more important issue is getting the mix of business right within those numbers. That’s a mix between specialist and mainstream and the credit profile of the business we are taking on.

In terms of operational roadblocks, we are asking – do we have the systems development capacity to do everything we want in the timeframe we want to do it? The obvious answer is no, because no-body ever does. Also, do we have the budget to do everything we want? Again, no because nobody ever has. These are the normal constraints of any business and you have to work within them and deliver the best compromise.

* This interview took place before the LSHBOS/Lloyds TSB deal

Nigel Payne – personal profile

Position: I am managing director of BM Solutions, the intermediary brand of HBOS. Mortgage lending wasn’t something I considered initially as a career. I started working in London with housebuider Wimpey but then I found the banking and building society arena. The Building Societies Act 1986 was coming into force and it was clear the world was going to change – and that change would present opportunities.

Likes: Most sports, with the exception of golf because I don’t play it.

Hates: Big Brother – I detest the programme. Also, people whose reaction to change is: “No we can’t do it.”

Relaxation: Holidays, watching my son play rugby and snatching time at home when I can.

Favourite food/restaurant: My top food is lobster and my favourite restaurant is Room in Leeds.

Current bedside book: I don’t read books. Correction – this year I’ve read the new James Bond novel Devil May Care, but that’s the first one in years.

Career resum?strong>

Payne’s career with the HBOS group spans some 13 years. Before that he was strategic planning manager at Leeds Permanent Building Society, which merged with Halifax in August 1995.

He played an instrumental role in the conversion of Halifax to plc status in June 1997 and in BM Solutions’ integration with Halifax when Birmingham Midshires Building Society converted to plc status and was acquired by the mortgage bank in April 1999.

He has performed a variety of roles at HBOS including head of retail savings, head of secured lending and head of service and business development for mortgages and secured lending.

While managing director of The Mortgage Business, Payne built the brand into a driving force in the intermediary mortgage market, tripling business volumes in his first year with new underwriting criteria, improved service and a range of new products.

He was appointed managing director of BM Solutions in June 2008 and is also chairman of the Property Information Systems Common Exchange Standard (PISCES), a not-for-profit data standards organisation involved in the commercial, residential and legal sectors of the property market.


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