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Events
Speech
BSA Annual Conference 2007 - Chairman's Address
We are now coming to the end of our formal business, other than the final Dinner, and in my closing Chairman’s remarks I would like to cover three things:
THANKS First let me pay tribute to all those who have made the last couple of days so stimulating. We have had an excellent selection of topics and speakers. It is particularly pleasing that we have been able to hold a Conference concentrated more on the marketplace than on regulation, which has been one of the recurring themes of our conferences over the last couple of years. Welcome as our regulators always are to our Conference, the chance to look at the market, look at how others see us, to think about service standards and customer marketing – are all very relevant topics to us in running our businesses. For giving us such a stimulating series of speeches, may I on your behalf thank all of our 28 speakers? We are also enormously grateful to our sponsors for the support that they have given us in the holding of a number of our key events:
We do appreciate the support which you give to the Association and this Conference and to the many ways in which you help societies in their everyday business. Lastly, to the BSA team led by Charlotte Bell and Sheila Ann Wheeler. Thank you for all the care, attention to detail and to those little touches that make this Conference such a pleasure to Chair. Please join me in showing your appreciation for the speakers, the sponsors and the organisers by giving them a warm round of applause for two excellent days. Can I also say to delegates that your participation has also been a major contributor to the last two days. However, your contribution however is not quite finished: we would very much like to have your feedback on the different sessions. Can I remind you to fill out your forms and let us have them, so that we can ensure that future events are only better still than this year’s. BALANCE SHEET Let me now turn to taking stock at the end of my year in office and totting up the balance sheet of how the movement stands as we move into 2007. On the economic front, we had a successful 2006 with strong mortgage balance growth in the market in societies of 9.5%, versus market growth of 11.5% with societies’ market share broadly steady at 17.6% in what turned out to be a rather more lively (some would say risky) market than many had anticipated. On the deposit side of the balance sheet, societies deposit growth amounted to 7.9%, whilst the market as a whole grew 7.8%, giving us an 18.9% market share. Again, a very creditable performance …. On the bad debt front, societies continued to enjoy very clean balance sheets, in part because they were under-represented in the riskier sub-prime and self-cert parts of the market and unsecured personal loan lending. What about an assessment of current trading performance? In giving this response, I do not want to beg the question about what is good trading performance in a society. A number of my friends from the plc world often say to me it must be very hard to run a building society when you do not have the simple measure of maximising shareholder value to guide you. However, I do not find it hard at all to determine whether we are trading successfully, albeit that some of the measures are not the same:
Let me also make the obvious point that the balance of these ratios is not size critical: it is perfectly possible to have a well balanced and well performing mutual, whatever one’s size. Against these economic measures, how have societies done?
Turning then to the financial measures -and here I am going to exclude the Skipton and the Nationwide - both of which produced very fine results- so that we can see the performance of the other half of the movement.
Overall, then, 2006 was a year of strong and well balanced performance. It was against this immediate background that two further events occurred which will have a rather longer-term effect on the movement, both curiously with a strong tie to Bournemouth. Indeed, at the end of this year it is most appropriate that we are here in Bournemouth to mark them. The first that I want to mention is Sir John Butterfill’s Bill. As many of you will know, Sir John is the Conservative MP for Bournemouth and was lucky enough to come 7th in the Ballot for Private Members’ Bills. Our luck was that Sir John is both a warm friend of mutuals and also a past master at guiding Private Member’s Bills through the House. With his assistance we have now passed a significant piece of primary legislation which relaxes important funding constraints on societies’ balance sheets, enhances consumer protection in the very unlikely event of a building society’s insolvency and throws open the window, if not yet the door, on the possibility of a wider range of mergers between the different classes of mutuals than is currently possible. Much work remains to shepherd the Bill through the House of Lords and then to draft the secondary legislation which will give effect to the Bill. But I would once again like to thank Sir John, Nigel Fawcett at the Treasury, Peter Hunt of Mutuo, our Parliamentary Adviser, and Malcolm Waters, our Legal Adviser, for their assistance in the drafting of the Bill. If anyone had told me at the outset of my year that I would be working with Adrian and Chris French to achieve primary legislation for the sector, you could have knocked me down with a feather. The fact that the Bill went through with so much support from MPs also illustrates the extent of the goodwill that societies enjoy in Parliament - perhaps a reflection of the hard work that we have done in improving our governance record and in championing consumers’ causes in the marketplace. The second major event related to Bournemouth was of course the announcement in September of the merger between the Portman Building Society, based in Bournemouth, and the Nationwide. This is now in the final stages of its approval process, but it will of course create a very major building society, larger than the Abbey/Santander and second only to the Halifax in the housing market. Although even the Nationwide will have some way to go before it reaches the size of Rabobank, the largest of the commercial mutuals in Europe, it is a very clear signal to the proprietary markets that mutuals can grow to a significant scale without abandoning - and indeed by actually thriving on – their mutual structure. We will all watch with interest how Graham Beale and his colleagues now start to shape Nationwide’s position in the markets. If last year’s figures are anything to go by, it will be an impressive performance. Beyond three rather smaller mergers - of the Leeds and the Mercantile, of the Lambeth and the Portman, and of the Newcastle with the Universal Building Society - the consolidation story, which many commentators thought would be more active, turned to be a quieter aspect of the sector. My own view is that consolidation is primarily driven by swings in the property market and with the market so strong last year, it was unlikely that boards felt the need to reconsider their trading strategies and to look for new partners. Whether that will continue in 2007 as the housing market eases will remain an open question, but one of the more successful seminars that we held during the year was a private seminar for the chairmen of societies on the governance issues arising around consolidation. I would here like to pay particular tribute to Alan Bennett’s and Eric Engstrom’s presentations (the latter via David Strachan), which were particularly useful in setting out the issues that boards need to consider. As I said earlier on, the sector has worked hard to ensure that its day-to-day governance issues are managed in an exemplary manner, mergers are potentially particularly sensitive areas of governance and I am very pleased that we were able to use this opportunity to ensure that high standards will prevail in this area in the future. So much for the major policy issues of my year. I should, however, mention three domestic areas where we also made concrete progress. The first of these was the rehousing of the Association, moving from our elegant, but inefficient, 5 storey town house in Savile Row to a more functional, modern building on Kingsway. The fact that we were able to do this with a 10 year lease at essentially the same rent as we left in Savile Row, while collecting £600,000 in forgiven dilapidations and other payments was very satisfying. Adrian and his team, particularly Louise Thornbury, worked very hard with the BSA’s advisors to deliver such a satisfactory result. I hope those of who have not yet visited the new offices will do so shortly. The second major domestic issue to deal with was the £2.5m deficit in the staff pension fund. Here again with good advice from our actuaries, Watson Wyatt, we were able to devise a funding plan with the staff and with the CML to put the fund back in balance within 5 years. The fact that we were able to achieve this without any increase in the subscriptions of member societies was particularly satisfying. The third domestic aspect on which we focused was the development of a more actively promotional focus to the BSA’s work, in place of the very heavy burden of regulation under which we have all laboured for the last 5 years. Important reports promoting the role of building societies in the savings and mortgage fields were produced by Adrian and his staff and further work is being done on the promotion of our service and community values work, with assistance as appropriate from marketing agencies. These promotional activities not only build up the fund of goodwill amongst policymakers that we found so helpful in supporting the Butterfill Bill, but they also get across to consumers that, in a market often characterized by commodity pricing, there are many other factors at which societies excel and which consumers value in choosing our products. These more domestic activities signify the importance that we attach to making sure that the BSA’s staff are properly housed and properly recompensed if they are to do the kind of promotional and lobbying work that they do on our behalf. Adrian, I hope that you will take from the work of the Council in these areas the importance that we accord to ensuring that you and your staff can continue to deliver the kind of service that we so gratefully receive. Finally in my account for the year, I would like to give my thanks to my colleagues on Council for their support and active engagement throughout the year. It is one of the pleasures of being Chairman of the Association that it is far from lonely and, when making some of the larger calls we have had to make during the course of the year, we were able to do so with a clear consensus of what was best for the movement. CARRY FORWARDS Finally let me turn to the carry forward list of items from this account which I will be passing on to Iain Cornish. Perhaps the first thing to say is that the economic situation, with the current rising trend in interest rates, may well see a calming housing market for the rest of 2007. Whether the recognition in the US housing finance markets that credit risk can sometimes go wrong will lead to a contraction of credit in the UK market is too soon to say, but I imagine that we will see margins in the housing market start to increase later in the year. An important piece of unfinished and possibly unstarted business which will support such a change will be Basel 2. I know that many board rooms are just starting to wrestle with the implications of this for their business. Although it is too late to have any impact on the structure of the rules for Basel 2, I do not doubt that the Association will be fairly busy during the year in helping societies to work out how they should best implement them. Another factor that may also be affecting margins is the lively debate currently ensuing on the legality of fees and charges levied by banks and building societies on their customers. Although the main interest to date has been on bank charges, the same principles will apply to mortgage-related fees. Indeed, during 2006, we have already seen the FSA correctly enforcing terms and conditions in lenders’ contracts to roll back the increase in mortgage exit administration fees that had crept up in the previous 2 years. However, I expect the underlying legality of contractually agreed fees and charges in other areas to be properly re-established during the course of the next 12 months. In that process we may see some of the more enthusiastic regulators retreat from what might otherwise become effective price regulation. Treating customers fairly in all its aspects should continue to be based upon high level principles rather than trying to set unenforceable common economic standards. An important regulatory output to come during the next 12 months will be the publication of the Retail Distribution Review by the FSA. This, together with the Financial Services Compensation Scheme, is likely to usher in a variable capital regime for the distribution sector. If this is the case, it could to lead to a significant change in the mortgage broker market, which in the short term at least, may be helpful to many societies. Another major piece of activity for societies will continue to be our work to reunite members who have lost contact with their accounts. We have already indicated our support for the Treasury’s manifesto commitment to set up a scheme for the mobilization of lost accounts and during 2007 we will see a further consultation paper on the distribution of any unreclaimed assets. More importantly, there will be a great deal of work to be done in all societies on defining which accounts are lost and on deciding how the opt out regime for most societies below the £7 billion threshold will operate. Last, but not least, Sir John Butterfill’s Bill will only become effective when the secondary statutory instruments are drafted and I do not doubt that will keep all of us busy in the detail for sometime. CONCLUSION So there is my tally and the list of carry forwards. It is now time for me to hand over the baton to Iain: he will not have his hands idle, as you can see. It simply remains for me to say how much I have enjoyed my time, to thank my Council colleagues for their support, and to say that I believe that I am handing over the Association in much the same good condition as I got it from Phillip Williamson. It has been a pleasure leading such an enduring and robust bunch of people and I thank you for the support you have given me.
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