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Twist at the end of society soap

The drama involving building society chief executives and a US venture capitalist has ended with a neat volte-face. Andy Golding, who publicly castigated Mike Lazenby for selling out to JC Flowers, will now be chief executive of OneSavings bank, the outcome of their union

If I was writing a soap opera based on the fluctuating fortunes of mortgage lenders and their chief executives, I would be tempted to draw on a real-life scenario that unfolded recently for inspiration.

The tale involves a US venture capitalist, a maverick chief executive of a local building society who does a deal with him, with a guest appearance from the chief executive of a rival building society who was opposed to the deal.

Indeed, the rival chief executive was so incensed by this deal that he wrote about his opposition to it on a tabloid website, but to the surprise of everybody in the climactic episode, he ended up taking over the maverick’s job in the US venture capitalist’s empire.

The US venture capitalist is Christopher Flowers and his firm, JC Flowers, which bought a £40m stake in Kent Reliance Building Society in 2010, forming a joint banking venture called OneSavings Bank which offers mortgages and savings under the Kent Reliance (Industrial Provident Society) brand.

For maverick chief executive think Mike Lazenby, the former chief executive of Kent Reliance. He is known as a maverick because his main focus is on delivering value for members and not protecting or creating local jobs not a popular position in a sector where societies often see themselves as the most important employer in their region.

In pursuit of his goals he sold the branch network of Kent Reliance and established a backroom operation in India. In the process he grew the society from £400m in assets to £2.4bn, with one of the lowest cost ratios in the industry.

Faced with the need to create more capital, he came up with an innovative but controversial solution.

As a result of a legislative change building societies can morph into or merge with other mutual organisations. He persuaded Kent Reliance’s members to vote in favour of becoming an industrial provident society, thus opening the door for JC Flowers to invest in the mutual.

It’s intriguing stuff but the plot doesn’t end there. In my soap opera the rival chief executive is Andy Golding of Saffron Building Society.

While reading the Mail on Sunday in July 2010 he spied an interview with Lazenby promoting the prospect of the new banking venture spawned from the curious coupling of a society with a private equity company.

The deal at this stage in our story wasn’t approved by the Financial Services Authority.

In the course of the interview Lazenby tactlessly suggested that the mutual sector is full of golf-playing luddites running an obsolete model.
Now I don’t know if Golding plays golf but he certainly does not regard himself as a luddite.

Subsequently Golding left a comment on the story on the Mail on Sunday’s website.

“Being a building society is about members, their rights, the service they receive and looking after their needs in a diligent and risk averse way,” he wrote.

“Looking at Kent Reliance’s capital position if this deal does not happen, it says to me that it would be the dead one. And selling out to effectively become a bank, and then fully demutualise at the point that JC Flowers want their earn out, flies in the face of the mutual ethos.

“Kent members should try a neighbouring mutual such as Saffron or Ipswich and realise that there is more to being a member than being told what to do by the CEO,” he added.

Assuming he is saying Kent Reliance will lose out because in the end JC Flowers will privatise the business, sell up and make a fast buck, the recent news that he is to become its chief executive certainly provides a twist in the tale.

Whether this amounts to drama or farce rather depends on your point of view.

There’s certainly some irony in his volte-face but in terms of bitter sweetness that’s nothing compared to the fact that the business he will be running represents the legacy of the man he so criticised.

Golding will be the fourth chief executive of OneSavings Bank when he takes over in January, since it received the FSA’s blessing in February this year.
Lazenby was the first, albeit just for a few days. Bob Scruton, Kent Reliance’s finance director, then stood in for a spell, followed by Jeremy Wood, formerly director of customer services for Nationwide.

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