Chairman's Address to the BSA Annual Lunch 2006

Text of a speech by Matthew Bullock, Chairman, Building Societies Association

Introduction

I am proud, on behalf of all 61 building societies in the United Kingdom to be able to welcome you to this, our 2006 Annual Lunch.  That so many of you – be you MPs, regulators, members of the media, representatives of other trade associations, suppliers of services to building societies – are prepared to come to central London to share lunch with us is a tribute not only to the quality of the lunch that we are able to offer in this splendid hotel, but also to the size and importance of the building society sector in the UK economy today. 

While welcoming all of you, can I reserve a special welcome to the representatives of Zurich, our sponsor today and also to our guest speaker from whom you will be hearing in a few moments, Ed Balls MP, Economic Secretary to the Treasury, of whom more in a few moments.

The Structure of the Sector

For many years people have been speculating on how many building societies will be in existence at some future date or another.  If these speculations had been backed with money most of the speculators would have lost it.  The rate of merger among societies has been far slower than most commentators were predicting.  There were no mergers whatsoever in 2004 or 2005; however, that position has changed slightly in 2006 and during my period of Chairmanship – an entirely unconnected fact I am sure – two mergers so far have taken place and a further two have been announced.  I am sure the BSA Secretariat will be wanting me to leave the chair as soon as possible before I do any more damage!

More seriously – and I am sure everyone in the building society sector will agree with me – I do not see mergers between building societies as a sign of decline.  Consolidation has been a natural development in many markets over the years.  Barclays’ acquisition of Woolwich bank in 2000, and Royal Bank of Scotland’s acquisition of National Westminster Bank in 2001, were not seen as signs of decline in the importance and role of the banking sector.  Similarly, mergers between building societies, leading to a reduction in a number of societies, should not be seen as a weakening of the building society sector.  By the end of this year building societies will have total assets of around £300 billion – up from less than £200 million just six years ago, employ 50,000 staff, operate well over 2,000 branches and 2,500 ATMs.  More importantly than the numbers, they offer some of the most innovative and customer-oriented mortgage and savings deals on the markets today.  Our market share far from collapsing, has shown signs of slow but steady rebuild.

How then do we view current merger trends, particularly the very large merger between the Portman and the Nationwide announced in September.  The BSA takes the view that that merger is very good news for all that believe that the personal finance market benefits from a large powerful mutual able to offer a real challenge to a range of similar banks more concerned with shareholder dividends than customer service.  That a mutual will rank Number Two in the market, ahead of Abbey, is a clear emblem that the building society sector is hardly “down and out”.

However, and you will expect me to say this both as leader of the BSA and as a chief executive of a regional building society, this merger announcement does not take away the unique characteristics that local and regional building societies possess.  Our knowledge of local markets and understanding of what our individual customers need means that we offer something different in the marketplace that our many members – as reported in the regular customer surveys that we at Norwich and Peterborough and I am sure many other societies undertake – value very highly.  Curiously, in a world of globalization, regional identities have, if anything, grown stronger. 

Building societies and their members may decide to merge for a variety of reasons.  During my year as Chairman one thing that has struck me is the vast difference between the cultures, objectives, aims and methods of operation of the various different building societies around the country.  What makes sense for one building society does not necessarily make sense for others.  An announcement of a merger by one small – or large – society does not mean that others superficially similar are forced or should even be encouraged into copy cat actions.  Of course, to say there will be no more mergers whatsoever in the future would be wrong, but I suspect that we will see rather more speculation than mergers over the next few weeks and months.

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