BSA CEO Keynote at BSA Conference

20 May 2015


Good morning

Welcome to the 2015 BSA Annual Conference. 

Welcome to our members from the UK’s 44 building societies and 2 of our largest credit unions.

Welcome to Associates, Sponsors, Regulators, guests from other trade and professional bodies.

Welcome to our visitors from overseas, from as far afield as the United States and Australia.  And to members of the press, our other delegates and supporters.

Welcome to Harrogate, ranked by Rightmove in 2013 as the happiest place to live in the UK.  And to Yorkshire, home to five building societies – one of the real heartlands of the building society sector.

Together, Beverley, Ecology, Leeds, Skipton and Yorkshire
  • Have around 4½ million members
  • Employ over 14,000 staff
  • Have total assets of £66 billion
  • And paid almost £100 million of tax on their combined 2014 profits of £433 million.


We are here to celebrate the successes of the past year.

And, over the next two days, to be stimulated by sessions intended to provoke thought and discussion on topics vital to the future and continuing success of building societies, credit unions and the UK’s broader financial mutual sector.
We are here in Harrogate less than two weeks after one of the most closely fought and uncertain General Elections many of us can remember.

As the dust settles and the new Conservative government faces up to the challenges of delivering its manifesto commitments with an unexpected but slim majority, I am delighted that we are joined this morning by Sophy Ridge, Political Correspondent from Sky News and by Trevor Williams, Chief Economist from Lloyds Commercial Banking to give us their take on the post-election environment.

And then, this evening after dinner, we may hear some alternative views on the new political landscape from Lord Dobbs of Wylye, better known to most of us as Michael Dobbs, author of House of Cards and creator of a phrase that has entered the lexicon on both sides of the Atlantic:

“You might think that, I couldn’t possibly comment”

To kick things off, I want to talk about:

The sector’s performance over the last year

Some of our key themes:
  • governance
  • talent development and
  • lending into and in retirement
And to set out some clear messages for our new government on:
  • diversity in financial services
  • housing supply


2014 was quite a year for the building society sector.  Now that we have most of the results in, let’s look at some of the headlines.  There is much to celebrate!

The UK’s 44 building societies have over 20 million members, who consistently rate the levels of service they get from their societies ahead of that from the rest of the banking sector.
  • Treating me fairly as a customer
  • Making me feel as though my business is valuable to them
  • Offering financial products that are easily understood
  • Providing competitive rates and good value for money
  • Acting in my best interests
  • Treating me as an individual
In 2014 the sector lent £53 billion on 373,000 new mortgages, 79,000 of which were to first-time buyers with:
  • Societies focusing on filling the gaps in a post MMR world where the definition of vanilla lending seems to have narrowed
  • The likes of the Ipswich and the Melton championing the cause of mortgage misfits
  • And the Ecology, Loughborough, Progressive and Hinckley & Rugby, among others, meeting the demands of the self and custom build markets
Against a natural market share of 19%, the building society sector took 26% of the mortgage market last year.

Between 2012 and the end of 2014, net mortgage lending by building societies was plus £41 billion compared with £6 billion from all other mortgage lenders.

Headline savings rates in 2014 seemed to be pursuing a relentless chase to the bottom.

Building societies typically sought to protect their loyal members, often maintaining both front and back book rates at a multiple of the bank base rate.

Financial results were strong with net interest margins recovering.

And with increased profits further strengthening capital and reserves.

The sector ended the year:
  • With assets of over £330 billion
  • Employing more than 39,000 staff
  • And paying in excess of £300 million tax on aggregate profits of £1.5 billion.
Quite a year!


This time last year I posed a question:

“What is the financial services sector that we want for the UK in 20 years’ time?”


“What are the steps that we need to take now to have the best chance of achieving that outcome?”

Well, one year down, nineteen to go.

The purpose of the question was clear to me then and is clear to me now.

What is the legacy that we of this generation are going to establish for our children and our grandchildren?  And are they going to thank us for it?

David Marlow, the Chief Executive of the Nottingham, expressed our collective stewardship responsibility succinctly and well to the BSA’s Council earlier this year – we have a clear custodial duty to our members (our savers and borrowers), past, present and future, to take responsibility for the legacy that has been passed down to us and to hand our societies on in a better state than we found them.

The lack of ambiguity in this statement, the lack of conflict between customer and member interests is for me one of the real strengths of the mutual sector.

Indeed, in all those debates that we have year in and year out about the mutual difference, it is the relentless focus on customers as members and owners that is the absolute essence.

In an era when the big retail banks are seeking to rebuild their reputations with customer focused strategies.  And the challengers are pursuing strong customer focused strategies too, we should be flattered.

If you didn’t know any better, judging by their advertising campaigns, you might think that they too were trying to become mutuals.

But here’s the defining difference.

Trying to look like a mutual, having a customer focused strategy, is a mile away from being a mutual and having the customer as your owner – this is not a “strategy du jour” for us, it is who we are.

And that is why I believe it is so important that we continue to explore what it is to be mutual, and how we derive sustainable competitive advantage from it.

When others are trying to copy us, how do we

Continue to raise the bar?

Continue to maintain clear blue water?

Continue to own the space?

That is why later this morning we will hear from Professor Jonathan Michie from Oxford University on the preliminary findings of research that he and his team at the Centre for Mutual and Employee Owned Businesses have been carrying out for us into a strategic vision for the UK financial mutual sector.

It is also why, before lunch tomorrow, Chris Pilling, the Chief Executive of the Yorkshire will be in conversation with Professor Roger Steare from Cass Business School about values based leadership, culture and decision-making.

And that brings me to one of the BSA’s forward looking themes:

The role of financial mutuals as an essential component of a properly functioning financial services sector.

Let me be clear – and many of you will have heard me say this before – I see running a successful building society as every bit as competitive, every bit as challenging and every bit as rigorous as running a shareholder owned bank.
Only different.

And that very difference creates more consumer choice, more product innovation, more competition in the marketplace and, importantly, greater resilience in the whole banking sector in times of crisis.  Corporate diversity is a vital component of a properly functioning market.

A recurring theme of the post crisis environment has been the impact of burgeoning international and UK regulation on the ability of BSA members large and small to focus sufficient time on developing their businesses.

Rather depressingly, our prudential regulators are on record as saying that they cannot see any light at the end of this tunnel.

They agree with me that the phrase “tsunami of regulation” accurately reflects the environment in which we are all having to operate.

It is usually reassuring when the Regulator agrees with you – but perhaps not in this instance!

In the feedback from last year’s conference, Mark Thompson, Chief Executive of the Scottish commented that he particularly enjoyed my re-telling of the Heffalump story.

It strikes me that for many chief executives and for many boards across the whole building society sector, the dominance of regulation on our current agendas makes us feel rather like Winnie the Pooh…

“coming downstairs now, bump, bump, bump, on the back of his head, behind Christopher Robin.  It is, as far as he knows, the only way of coming downstairs but sometimes he feels that there really is another way, if only he could stop bumping for a moment and think of it.”

Speaking in Singapore last November, Mark Carney in his capacity as Chairman of the Financial Stability Board, said that “the job of agreeing measures to fix the fault lines on which the financial system had been built is now substantially completed.”

He went on to say that “we must now consolidate our progress to build a financial system that can deliver strong, sustainable and balanced growth for all economies, large or small, advanced or emerging – and that achieving these ends requires a financial system supported by the three pillars of diversity, trust and openness.”

Lord Hill, European Commissioner for Financial Stability, Financial Services and Capital Markets Union said in March this year that he looked forward to fewer new legislative proposals in future, with more focus on bedding in the major reforms of recent years and seeing that they are properly implemented.

The Commissioner is thinking about the cumulative effect of different pieces of legislation and wants to make sure that legislation is proportionate and takes into account the different business models that we have in our diverse financial landscape

“I don’t want to burden smaller, lower risk institutions with the same requirements we need for bigger, riskier ones.”

Lord Hill’s words.

We agree.

As I said last year, the principal challenge for regulators is their natural tendency towards creating homogeneity rather than diversity.

Inadvertently creating new concentrations of risk.

Cass Business School will shortly be publishing research we have commissioned into building society performance over the last fifteen years compared with that of the high street banks.
The research findings will show that building society earnings are more stable, that societies are less risky and that their operations are as efficient as those of banks.

As a result, building societies make a valuable contribution to the diversity of the marketplace.

That is why, in our Manifesto for Financial Mutuals last autumn we called for existing statutory competition objectives for both the PRA and the FCA to be extended specifically to encompass corporate diversity – the need to foster different kinds of provider as well as broader product ranges.

It is not sufficient for either Regulator to claim that they are meeting their competition objectives through licensing new banks.

Whether the new government takes up our proposal or not, we will actively be encouraging ministers, select committees and parliamentarians to question regulators closely about how they are supporting, facilitating and encouraging all ownership forms in banking and financial services.

This might sound like a strange objective for a regulator.  But we believe that it is in their best interests too, helping them to avoid creating new concentrations of risk and new potential points of failure as they, rightly, continue their part in restoring confidence and trust across the whole sector.

My vision for the UK’s financial services sector, and I hope yours too, is not about an increasing focus on a shareholder owned model.

It is about a vibrant sector characterised by a broad range of business models and business types, side by side, equally valid, equally rigorous – just different.

Financial mutuals, including building societies and credit unions, must have as vital a role in our future as they have done in our past.

Which brings me to my second theme.

When I was at the Institute of Chartered Accountants, an organisation founded in 1870, a year after the BSA, we posed the strategic question:

“How do we take this great institution with its roots in the Victorian era and make it fit for purpose in the 21st century?”

Many building societies have their origins in the same age.  So:

How do we build on that great tradition and lay the path for the next twenty years?

Many of the sessions in this year’s Conference focus on aspects of this journey.

This afternoon we will be debating customer and member strategies for the 21st century including lending into and in retirement.

Tomorrow we will be talking about excellent and distinctive governance, about values-based leadership and about talent development.

Without stealing the thunder from any of those sessions, I’d like to lay out some preliminary thoughts for you to take away now.

Starting with Governance

At the BSA’s annual Chairmen’s Seminar back in March we were fortunate to hear from Sir Chris Kelly about the lessons set out in his report on the Co-operative Banking Group.

Many of you will know that I am a bit of a cracked record when it comes to talking about the crucial importance of governance in running any successful business.

This time last year I said that we would be starting a fresh review of what excellent and distinctive corporate governance looks like in today’s building society world.

Excellent and Distinctive.

Words that might have made some feel a little uncomfortable.

They were and are intended to.

You could say that failings in corporate governance among the world’s leading banks were at the heart of the 2008 crisis.

There is certainly plenty to suggest that poor governance was a significant factor for many of the building societies that got into difficulties over the years:

Complacency in good markets

An inability to rein in or moderate an overly strong chief executive.

Failure to grasp the real risks facing the business

In the post 2008 environment boards and their chairmen of all regulated financial services businesses have a simple choice when it comes to standards of governance.

Either they can run their own boards by setting standards of governance and performance that meet or exceed the reasonable requirements of the regulators, or they can expect substantial regulatory intervention.

This is what we mean by excellent corporate governance in building societies.

And when we talk about distinctive corporate governance, we do not mean blind adherence to the UK Corporate Governance Code.

We mean taking and adapting and applying the principles of the Code in a way that is appropriate to the particular nature, and ownership structure of each society, and of the sector as a whole.

I am delighted that tomorrow, Ian Pickering, Chairman of the Coventry will be chairing our Conference session on this very subject.

And that he will be joined by Ursula Lidbetter, Chief Executive of the Lincolnshire Co-operative Society and until recently Chair of the Co-operative Group,

And by Jeff Morris, a partner from Odgers Berndtson, who has given generously of his time to help produce the review of Building Society Governance, which will be on your seats tomorrow.

Secondly, Talent development

The sector has recognised the importance of growing and developing its own talent for many years.

In recent years at the BSA Conference we have run an emerging leaders day.  But the consensus after last year’s event was that the existing one day format was not enough and that there was an opportunity to develop something far more ambitious.

So I am delighted that, with strong support from the BSA membership, we are today able to launch a Masters programme in Leadership and Management with the School of Business and Economics at Loughborough University.

The three year programme has, as David Webster, Chief Executive of the Hanley Economic described it:

“the mutual dimension woven right through it like the ripples in a raspberry ripple ice cream”

The Programme starts this autumn and places are limited, so now is the time to talk to the Loughborough team on Stand 26 in the Exhibition Hall and sign up.

I want to thank the Loughborough team of Professor David Llewellyn, Dr Cheryl Travers and Vicki Unwin for working with us developing the programme against a pretty demanding timetable.

And also to members of the advisory group from the Hanley Economic, Melton, Nationwide, Nottingham, Skipton and Yorkshire for their invaluable input and support.  Many of them are here too, ready and willing to talk to you.

In the final session tomorrow afternoon you will have an opportunity to hear from Cheryl Travers and Professor Tom Jackson first hand – and they have promised us a stimulating and entertaining end to the Conference, so please do stick around.

And thirdly Lending into and in Retirement

One of the major demographic shifts of this generation is that of the UK’s aging population.

As a NESTA survey recently put it, we are living five hours longer every day.

It is equally clear that as more and more people head for retirement with a defined contribution based pension, the question of how retirement is to be financed and how we enable people to end their lives with the dignity and choices that we would expect in one of the world’s leading economies, lending into and in retirement is going to be a major theme for the whole financial sector.

With a state pension currently promised at £140 a week and an average DC pension pot reckoned to be about £26,000 giving a tax free lump sum of £6,500 and an approximate monthly pension of £50-65, we should expect those who are fortunate enough to own their own homes to want to use those properties to help finance their retirement and, ultimately, care whilst they continue to live in them.

This will present a real challenge, but it is not one that I believe we can duck – and I include our Regulators in that challenge.

Financing older age will, I believe, be one of the critical social issues for the remainder of the 21st century.

Which is why we have started a major project involving over 20 societies in exploring the opportunities for the sector, together with the challenges and the obstacles facing those people that need to borrow close to, or in, retirement.

How do we meet the commercial, prudential and conduct challenges?

This is all about doing the right thing.

About recognising and responding to social change.

About contributing positively to the social fabric of society as the building society movement has always done.

About defining what really good looks like.

We are well placed to take a lead in this area, making it clear that building societies have a desire to do even more for older borrowers.

We already know that our sector is more flexible in this area than the large banks.

Some societies do not have any age limits or restrictions, dealing with each application on its own merits.

This is natural territory for mutual lenders.


In the lead up to the General Election the BSA produced two manifestos.

At our Annual Lunch last November, we launched our Manifesto for Financial Mutuals, in association with the Association for Financial Mutuals.

Its main focus was on corporate diversity – and the need for that level playing field in legislation and regulation.  No special preference, but a clear recognition that the mutual business model is different from the corporate shareholder model, with the two models being considered side by side.

We called for the requirements on the regulators to carry out their statutory competition duty to include specific consideration of the impact of regulation on fostering diversity among financial services providers.

And we renew that call now.

In order to achieve the twenty year vision of a truly diverse, competitive and resilient financial services sector for the UK, we must ensure that our regulators are held to account for their part in supporting an increase in choice and diversity.

At the very least, whenever one of our financial regulators is meeting with officials, with ministers, with select committees, we want them to be questioned on this point.

“What are you currently doing to increase competition and choice, including encouraging different business models and types?”

I wrote to the Chancellor and to the Shadow Chancellor on this subject last week.  I will also be writing to the Chairman of the Treasury Select Committee and the new Chairman of the All Party Parliamentary Group for Mutuals in the same terms, once we know who they are.


In March we launched a second manifesto entitled “Housing at the Heart of Government” which set out five building blocks for a better housing market for the UK.

The single most important thing that our new Government could do for housing in the early days of this Parliament is to set in train a cross-party fifteen year plan based on national and regional demographic changes, employment, environmental concerns, infrastructure and house price inflation.

But we need to build houses as well – and the statistics show that since 1946 the private sector has only twice succeeded in building more than 200,000 houses a year in England.

In 1964 and 1968.

In 2014 the total was less than 94,000.

The RICS last week talked about the chronic lack of new homes coming onto the market becoming a national emergency.

And Nils Pratley, writing in the Guardian said that the big five quoted builders only have the capacity to meet 30% of the estimated demand for new homes.

So to meet its manifesto commitments, the new Government must ensure that Local Authorities and Housing Associations build as well.

And build in real volume.

And, as importantly, replace homes sold through Right to Buy at a ratio of more than one to one.

For our part, many building societies already have good working relationships with local and regional builders and are the main suppliers of mortgage finance for self and custom-build across the UK.

This year we are looking to go further with a programme designed to increase the availability of mortgage funding from building societies for homes built using modern construction methods.

This applies particularly to off-site modular construction, a method of building currently niche, which is substantially quicker than standard brick and tile construction.  It is not yet well understood by the lending community, a position we hope to change over the coming months.


A year in which building societies’ performance has been one of the success stories of the financial sector

Some important themes to get our teeth into between now and tomorrow evening:
  • Excellent and distinctive governance
  • Ambitious talent development
  • Financing older age – one of the critical social issues for the remainder of the 21st century

And clear messages to our new government around:
  • The real need for diversity in financial services
  • Sorting out the supply side of the housing market
I hope you all enjoy this year’s BSA Conference and go away tomorrow afternoon with some new ideas, some fresh inspiration and, above all, leave the happy town of Harrogate with a spring in your step.

You can take a look at the data slides that were included as part of this presentation here.