Originally published in American Banker magazine on 18 May 2018.
Written by Laura Alix
Building societies are the U.K.’s answer to mutual thrifts and credit unions. They stick to bread-and-butter banking, raising retail deposits and using that money to make mortgage loans in their communities. They also share many of the same challenges facing mutual banks in the United States. They want to know whether mutuality still has a place in the global financial system, and they wonder how to communicate their philosophy to the next generation.
It was against this backdrop that representatives from British building societies met with senior leaders of some New England thrifts and credit unions recently to address common challenges and share ideas about staying relevant at a time of rapid change in financial services. U.S. bankers say they walked away with some valuable lessons about cultivating talent, while their British counterparts say they learned a thing or two about better serving unbanked or underbanked consumers.
Salem Five CEO Ping Yin Chai said that banking is "not in vogue" with young professionals. “We’re being overshadowed by sexy industries like high tech and biotech." “I don’t think any of us came over here thinking we were going to find the silver bullet and I don’t think we brought one with us, but there are things that you can take from different business models and tailor to fit your own circumstances. That’s what we’re looking for,” said Rob Pheasey, the CEO of the $660 million-asset Marsden Building Society in Nelson, England.
Stanley Ragalevsky, a Boston banking lawyer with K&L Gates, organized the visit between the building societies and the American banks and credit unions. Seeing similarities between building societies in the U.K. and the mutual banks he works with in Massachusetts, Ragalevsky said he felt the two groups would benefit from some discussion about their common challenges. “The history of the world is really two things: the history of communication and the history of transportation,” Ragalevsky said. “We’re all trying to figure out, what does that mean for a mutual organization?”
Building societies have some qualities in common with their American counterparts, like their mutual governance structure and a primary focus on their local communities, but there are a few key differences, too. Building societies tend to be very straightforward in their product offerings: residential mortgages and retail savings accounts, and that’s it. They don’t make auto loans or even offer checking accounts. They also have a simpler regulatory structure, answering to just two regulators throughout the entire country.
Building societies generally keep mortgage loans on their books once they make them. The U.K. doesn’t have the kind of secondary market the U.S. does, so with very few exceptions, building societies don’t bundle and securitize mortgages. Their fixed-rate mortgages also tend to be for much shorter terms, typically about two years. Ragalevsky worked with Robin Fieth, CEO of the Building Societies Association in London, to bring these bankers to the U.S.
American Banker was invited to sit in on one of the visits and on this particular day, Fieth and five executives from building societies of various sizes met with senior leaders from Salem Five Bancorp at the company’s headquarters in Salem, Mass. Talent development is top of mind on both sides of the Atlantic. Both groups of bankers worried that younger generations are overlooking their industry in favor of startups and cities perceived as cooler places to work. Andy Lucas, the chief operating officer at the $1.7 billion-asset Cambridge Building Society, said that most young people in and around Cambridge would rather migrate to London than work at a small institution two hours away. The building societies’ answer to that is its apprenticeship program, in which they recruit new employees to work for their organization and rotate them through several different departments over the apprenticeship period. Unlike interns, apprentices are hired as employees, with a salary and benefits, and they usually stay on after the apprenticeship has ended.
For the Yorkshire Building Society, which has roughly $59 billion in assets, the apprenticeship program has led to a reverse-mentoring exercise. CEO Mike Regnier said he asks his apprentices how they would improve the business and what they would do differently in his position. That has led to some changes in the company’s social media strategy, which it previously used mainly as a channel for complaints. “There are lots more creative ways in which you can try to reflect the organization you’re trying to be and the difference you’re making through social media,” he said. “We’re doing an awful lot of work in that area and it’s on the back of suggestions from them.”
The U.K. bankers said their mutual ownership structure often resonated with apprentices, largely socially conscious millennials who want to work for purpose-driven organizations. That need for talent —and how the building societies are approaching it — resonated with Ping Yin Chai, the president and CEO of the $4.7 billion-asset Salem Five Bancorp. We’re being overshadowed by sexy industries like high tech and biotech. I think there is a need for banking and it’s a very, very good occupation for someone to enter into here,” Chai said. “It’s just that we are not in vogue at this time.” Though Salem Five has a paid internship program, Chai still saw an important takeaway for his fellow mutual bankers: Mutuals still need to grow their own talent and it helps to make mutuality part of the message in recruiting prospective employees. The U.K. bankers said that they also struggled with getting first-time buyers into the housing market. Much like their Massachusetts hosts, they’re finding that younger generations have difficulty saving for a down payment.
But building societies also have a bit more flexibility in designing new products for firsttime home buyers. For example, the $450 million-asset Vernon Building Society in Stockport designed a mortgage product for university students. Those borrowers can purchase a house or apartment with their parents’ assistance and use what would otherwise be rent payments to build up equity while in school. “When they graduate, they can sell the house, they’ll have a piece of equity, they have a credit history and they can move themselves into the market more easily,” said Ed Lord, the organization’s former chief risk officer.
Here, it gets tougher for American mutual banks. Plenty might like to do something similar, but they’re held to stricter mortgage-lending regulations. “We know our communities well, we know our customers well, and I think we should have a little bit more leeway in loaning to those individuals without getting into a lot of regulatory risk,” Chai said.
Among other lessons he took away, Fieth said he was especially interested in American banks’ efforts to reach underserved communities. Perhaps, he suggested, building societies could take a page from mutual banks by providing documents in other languages than English to better reach people whose first language is not English. Above all, Fieth was pleased to make the connection and came away from the meeting feeling refreshed at seeing how other mutual financial institutions operate in other parts of the world. “We need to reach out and share ideas and share inspirations and experiences,” he said. “Partly to get the reassurance, if you’d like, that we aren’t alone and we have this common purpose and also because no single group of people have all the good ideas.”
- Society Matters summer 2018 edition
P12 - Stan Ragalevsky, BSA 2018 study tour: Learning from overseas mutuals
P13 - Rob Pheasey, Marsden Building Society CEO, Takeaways from Boston