Monday 22 June 2009

CAPITAL CHANGE

The recent events at West Bromwich Building Society led to a collective sigh of relief in our sector. For some weeks there has been speculation that the West Brom could go the way of the Dunfermline Building Society and some of the media seemed to extract glee from the difficulties faced by another mutual. Thankfully West Brom has confounded these cynics by gaining access to a new form of capital which will allow the society to swap some subordinated debt for a new instrument called Profit Participating Deferred Shares. (PPDS). This means that the West Brom ( and presumably other societies) can benefit from the flexibility and percieved higher quality of tier 1 capital through PPDS rather than rely on the more rigid and less favoured (as the name suggests) subordinated debt which typically exists in the form of long term loans with a fixed interest rate payable.
However the new PPDS leaves the West Brom (and the building society sector) with a new conundrum. Mutuals don't have to maximise profits for shareholder yield.But holders of PPDS may well seek maximum returns.How will societies with PPDS balance the needs of mutual members ( savers and borrowers) with the potentially divergent needs of PPDS holders? Watch this space!

Wednesday 10 June 2009

"If you think change is tough........"

The sheer scale of the changes announced yesterday by the Lloyds Banking Group take your breath away. The closure of all 164 Cheltenham & Gloucster (C&G) branches with the loss of 1,660 jobs is acute enough but news that Intelligent Finance will move out of the market for new mortgage business and Bank of Scotland will exit the intermediary mortgage market simply intensifies the sense that these once great "brands" are now collateral damage in the rationalisation of the group. When I first joined the building society sector 20 years ago C&G was my fiercest local competitor.They had slick systems and a fine reputation as a progressive building society but now like others who converted to PLC ( eg. Alliance&Leicester, Bradford &Bingley, Halifax, Northern Rock) their logos will soon become the stuff of nostalgia. But for me our financial services landscape in the UK is much poorer for the absence of such locally-established players.The local flavour offered by our thriving building society sector in 2009 remains something to be of which we should be very proud and protective. But clearly we need to adapt and to get even closer to what our members need by getting even better at the stuff we do well. As someone once said, "if you think change is tough,wait till you try irrelevance".......