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Mortgages, Minghella and Mutuality

David Webster is the new chairman of the Building Societies Association and chief executive of the Hanley Economic Building Society but he’s also a blogger and a film buff and takes his inspiration from unusual sources

JM:The Hanley Economic seems to me to be very much a local building society, so it would be interesting if you could tell us a little about the business and the community it serves.

DW: Well we’ve been around a long time, around 155 years, and we certainly have a strong local franchise. We’re focused very much on the five branches around North Staffordshire.

It’s not a wealthy area. It’s an area going through a massive transition from a strong manufacturing base, from coal and from potteries to what’s now becoming a logistics and an SME base for the area.

In many ways being between Birmingham and Manchester presents a fresh set of challenges for Stoke. It’s an unusual city because it is comprised of smaller towns and as for our building society, I think we punch above our weight locally. We’re well regarded. I think it’s important for our members to feel that we are putting something back into the community.

JM: And how has a man with a soft Scottish burr from far away East Kilbride come to run a business with such a Staffordshire identity?

DW: It was a circuitous route! I came down to England after I graduated in the early 80s and spent 12 years at Bradford & Bingley where I had some great times and some fantastic experiences, though there were some less great times when it came to conversion [to become a bank] and the changes that followed. In fact my last 18 months at B&B were probably difficult and kind out of the blue I got a phone call from PricewaterhouseCoopers about the position here. I count myself very fortunate to be in the position I am.

JM: So you were at B&B during the last days of Chris Rodrigues?

DW: Yes I was. I had an extremely good relationship with my previous boss, a guy called Jim Jamieson, who reported to Rodrigues, and subsequent to Jim leaving to go to America, working for Rodrigues didn’t really work for me. I suppose it was one of the situations where change came at just the right time, and I can’t believe that I’ve spent eight years at Hanley – time has gone by so quickly.

JM: You’ve been chief executive since April 2002 when there were a lot more building societies around. Indeed, we’ve seen 10 disappear in the last two-and-a-half years, so what is your strategy for survival?

DW: We’ve tried to look after our people and we’ve tried to look after our customers. We’ve tried not to stretch into areas which we frankly don’t know that much about. We’ve been fairly traditional and in my time we haven’t been focused on asset growth. We’ve looked very much at growing our surplus so that we can reinvest that and make sure we’ve sufficient capital and reserves behind us and if you look at our capital position it’s pretty strong.

The way I feel about small building societies, what differentiates us is our people and the service they can provide. If we end up in a commoditised battle with the big players, then we lose. I spend a lot of time and energy ensuring we bring in good people and we look after the staff we’ve got. I think whatever strength there is in the business has to do with the quality of the people we employ.

JM: How do you think building societies as a sector will have to adapt if they are to remain a viable entity in the mortgage market?

DW: I think we’ll have to embrace change. We’ll have to combine the need for contemporary relevance, which is important, with the good things that exist in the mutual sector – the things that distinguish us from other areas. So I think it’s about holding on to our roots, the traditions and the values from where we’ve come but putting a contemporary feel to that and making sure we are alert to changes which frankly are inevitable.

JM: Service levels and staff training go hand in hand and I know from your blog as chief executive and the awards that your society has won that you’re keen on what you call ’staff engagement and development’. That sounds really positive but isn’t it counterproductive within a small organisation to grow people when at the end of the day they outgrow you and leave?

DW: Actually I do believe that if you look after your people, they will look after your customers. I think if they are engaged, energised, motivated and proud to be a part of the organisation, if they relish the fact that we’ve got a business that’s good to be around, they convey that to the customer. I’ve never found people development to be anything other than a joy, to be honest.

We’ve done some work with other societies through collaborative initiatives. We’ve also done a lot of stuff internally and we’ve made it very plain to our 20 and 30 something young managers that we expect to move them around a bit. The reaction has been very positive. My staff turnover – I’m sure staff turnover around the industry is not high at the moment but mine is around 1%. I like to think that once we bring in good people they like to stay.

I’d like to add that I’ve got a lot of experienced staff who are every bit as good and as focused as the people I’ve brought in. That was a real learning point for me – you can remould and refashion the very good experience that they bring to the business. It’s not just about turning everything on its head and bringing in your own people.

JM: That must be a tricky point when you take on a CEO role – introducing your ideas and your preferred way of working. How difficult was that for you?

DW: Looking back it was a balancing act. In certain parts of the business there was a need to bring in examples of how I wanted people to behave – the attitudes I wanted to exemplify – but I found it was also possible for me to train and develop some of the people who were already there to exemplify that behaviour, so there was a balancing act to be struck there.

My predecessor had been at the Hanley for 19 years and I think a lot of the staff thought I would have a mass clear out but I haven’t really. Over the last eight years there have of course been a lot of new people arriving but I have staff here with 20 and 30 years’ service.

JM: Returning to your blog – in another entry you write about your impressions of Loretta Minghella who was guest speaker at the BSA annual lunch in November. She’s chief executive of the Financial Services Compensation Scheme and given that some societies have gone into the red as a result of their contributions to the FSCS, I would have thought you might have been a tad more critical. Instead you observe that her brother was the late Anthony Minghella and you comment glowingly on some of her anecdotes about the film director. Are you letting your appreciation of films like The English Patient colour your judgement or do you save all that needs to be said about the FSCS for frank and meaningful discussions behind closed doors?

DW: Well I’d never met Loretta before and the lunch went by in a flash because we talked about movies and her late brother and all the movies that he’d made. Yes, I was really taken by her and we got on famously.

JM: So did you let your admiration of her brother’s films colour your perception of the FSA and what it is doing under the FSCS?

DW: No I don’t think I would have been able to mask entirely my concerns in that regard.

JM: Of course the terms of the FSCS are a bit of a running sore but presumably you’re making some progress and there might be some grounds for satisfaction?

DW: Satisfaction would be far too complimentary. I think we still feel pretty bruised about how societies have had to pick up the tab but equally I think we have the determination to play our part in designing whatever emerges as the right way forward for the industry.

JM: Moving on to BSA territory, back in May you took over from Graham Beale as chairman. Beale is chief executive of Nationwide and had a big executive team to fall back on when he was in office. I think it’s fair to say that you don’t have quite the same resources. Does that mean that you have to run twice as fast to ensure that neither the society nor the BSA suffers as a consequence?

DW: My infrastructure consists of myself and my PA Joy and she is one of the people with over 30 years’ experience, so she’s invaluable. I had to balance my sense of feeling very privileged to be asked to be BSA chair with a realistic assessment if I could do the job with the resources I have internally to support me. But I talked to my team and I talked to my board and they were extremely encouraging.

JM: Do you have an intranet blog back at the Hanley, so you can relay what’s happening at the BSA to your colleagues internally?

DW: I do actually and we’ve an interactive site as well so they can all fire questions at me.

JM: Can you give readers an insight into the kind of things that might be keeping you busy with the BSA? Presumably there is the whole of the Building Society Source Book agenda and the mortgage funding issue?

DW: We’re obviously concerned about the mortgage market outlook for the next 18 months or so. We are worried about funding, we’re concerned about the ferocity of the competition in the retail savings market, and of course the planned demise of the Special Liquidity and the Credit Guarantee schemes will mean that this territory will become even more congested. Margins are also under increasing pressure – that worries us.

We’ll have to build a business model which can contend with that.

We’re concerned more broadly on the funding aspect and the extent to which we can access some external issue capital in the same way that we had permanent interest bearing shares in the past. And on the positive side we are keen to make the most of the opportunities presented to the mutual sector in the current climate.

JM: Home ownership seems to have moved off the political agenda and I’m wondering where building societies sit on this issue. I mean societies virtually funded the growth of home ownership (and the property owning democracy) during the last century. However, in recent years we’ve seen the unremarked decline of home ownership and a growth in property to rent with young people finding it virtually impossible to get on the property ladder. Wouldn’t this be a particularly viable cause to champion in a post credit crunch environment?

DW: I think the fact that under the labour government we had nine housing ministers in 13 years gives you an idea where housing sits as a policy priority. I’m not sure what the housing policy of the coalition government is going to be but should building societies play a part? Undoubtedly yes, we can. We want to talk about things like shared ownership, we want to help first-time buyers and that if there are any problems with the owner-occupied sector we want to assist in that too. But we can’t fly solo on this, we really do need a co-ordinated and concerted approach on policy and I’m no clear how all this will emerge.

JM: Turning to a question that directly impacts on building societies, in a deal with JC Flowers Kent Reliance will become an ’industrial and provident society’ rather than a building society, which will allow it to raise extra capital while retaining its mutual status. This gets over the problem that societies have in creating tier-one capital. Kent will have a bank subsidiary that it will jointly own with JC Flowers and they will both inject £50m. Kent Reliance will own 51% and JC Flowers 49% of the venture. That’s fine up to a point but there’s speculation that JC Flowers plans to adopt this template to target other regional building societies and I wonder how you would regard such a development?

DW: I think it would be inappropriate of me to comment, but what I do know is that building societies are very accustomed to rising to fresh challenges and we are a resilient bunch. Our core markets are changing and our regulatory landscape is evolving as we speak. The response of building societies is to pursue the individual strategy they wish to focus on, and that may well be fairly “traditional” in approach, and so the texture of the JC Flowers/Kent Reliance model won’t be a template, merely a tailored approach for those two specific organisations.

JM: Looking ahead, predictions suggest that the mortgage market will be flat-lining for the next five years at least, the major problem being the mortgage funding issue. That doesn’t suggest a very buoyant recovery nor very much to look forward to. Do you share that view or do you have some reasons to be cheerful?

DW: I’m hesitant about commenting on the longer term outlook but looking to the next 12 to 18 months I have a fairly cautious view of the emerging housing market. Funding remains an issue. Then there’s the impact of public sector unemployment which could have a feed through to arrears. So I’d view the next 18 months with some caution and conservatism but I still feel that local, regional and large building societies still have a part to play. LSDavid Webster – personal profile

Position: Chief executive, Hanley Economic Building Society.

Always wanted to be a lender? I wanted to be a professional footballer when I was young and when I went to university I wanted to be a film reviewer and I haven’t given up on that one.

Likes: Enthusiastic people and people who in a humorous and a fun way can make things happen.

Hates: Prejudices and negative attitudes.

Relaxation: Cinema, golf and time with my family.

Favourite food/restaurant: My local bistro.

Current bedside book: The latest Harlan Coben thriller.

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