Fallen banks and mutuals are an example to us all

As I write, we approach the date of 15 March which was notable for Julius Caesar in that it was to be his last.

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He chose not to heed the soothsayer’s warning to “beware the Ides of March” and paid dearly for it.

You could argue that the ramblings of an eccentric do not constitute grounds to change your plans, however Caesar ignored other warnings that suggested it might not be a great day for him.

Taken separately, the warnings were all inconsequential.

But when aggregated, there was enough circumstantial evidence to justify, at the very least, pause for thought from Caesar.

In reality, however, he was lured on to disaster by promises of glory sufficient to make him overlook a catalogue of ominous signs.

And so we link seamlessly to the mortgage market in 2013. The aggregation of today’s portents could make for pretty dismal reading – a frail economy, low consumer confidence and political uncertainties both within and between the coalition and the opposition.

Any sense of sustainable economic recovery seems beyond distant and house prices are doing nothing spectacular.

No sensible lender would choose to embark on something new against such a backdrop – would they?

But they do. Lenders continue to rush in, drawn by the lure of cheap money from the Funding for Lending Scheme.

Most are looking to support the nice, safe, sub 60 per cent LTV borrower with a steady, predictable income.

For lenders it’s like shooting fish in a barrel – you can pick and choose but you have to elbow your way in.

As this barrel has become increasingly crowded, however, lenders without the muscle to play in it any more are moving into new markets and taking positions further up the risk curve.

The problem with this is that they are occupying these new markets through necessity rather than design.

There isn’t an assessment that asks the fundamental question; “do we know how to do this?”

“We’re going into buy to let/near prime/bridging” is not a strategy as it has no rationale and is not supported by an assessment of competency to do so.

In a world about to be dominated by a new, conduct-focused regulator, an argument that “it pays more”, however euphemistically it may be expressed, hardly constitutes a valid rationale.

There are reasons why some lenders have emerged as specialists in their chosen field. They usually involve a strategic focus and becoming skilled in that field. They have invested in becoming extremely good in their chosen specialist markets.

They will outlive the opportunist new entrant who sees his market as a means of making a quick profit. Form is temporary, class is forever.

Lenders need to understand their markets and operate in them for reasons that stand up to external scrutiny.

Lenders who ignore the risk factors that are all too evident in our current economic environment will, like Caesar, find that they risk a messy end.

Supporters have a habit of fading away and stripped bare, some lenders will certainly find that their legacy is tainted. After all, as Mark Antony said, “the evil that men do lives after them; the good is oft interred with their bones”.

There’s no shortage of failed banks and building societies who serve as examples to us all.