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!

"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".......

This week my wife treated me to a fantastic birthday gift of a trip to see Eric Clapton at the Royal Albert Hall. The venue was spectacular and the gig was really superb. We also took time during the afternoon to visit the Victoria & Albert museum which is a favourite place to view the glittering heritage of wonderful art that we have in this country. During our trip around the British art segment we were both taken aback by the volume of magnificent works which were manufactured right here in Stoke on Trent. Majestic pieces from Minton, Wedgwood, Spode and others grace the halls of the V&A and remind us of just what a powerhouse city Stoke on Trent once was and how pivotal it's businesses were in the late 18th and 19th century.
Inevitably this made me think about how the city has coped with the pace of change and how leadership over many decades has allowed the contemporary world to overtake the local, traditionally strong industries.Of course change is inevitable and nowhere is immune.But change can be managed, and opportunities seized. In relation to The Hanley, we strive to combine the verve of a modern, customer-focused business with the traditions and roots of a locally-based building society. The pace and depth of change in our sector remains challenging and frenetic at times but we are extremely optimistic that this local building society is not a museum-piece,but rather is a vibrant contributor to a diverse financial services sector where we like to glance back occasionally but where we much prefer to look forward and seek ways to make our own mark.

TRUST US

Party politics interests me about as much as crocheting or skydiving, but it's just impossible to ignore the spectacle of our elected MPs scuttling to repay those expenses that are now deemed excessive. Frankly if they think this will recapture public trust I think we need to tell them that horse bolted long ago. Trust is hard-earned but fragile. Financial services firms ache to be trusted by their customers and the credit crunch has undoubtedly damaged that trust. But putting things right after you've made a blunder is only one part of rebuilding trust. I think people generally want to see real contrition and a genuine will to do better in the future.Politicians proclaiming that they "didn't break any rules" are missing the point;it's not legality that is the issue ,it's greed.
Building societies have a long history of earning the trust of their members and we work really hard to preserve that trust. We don't seek the moral high ground nor do we get it right all the time but I believe that Hanley members can expect us to be trustworthy, transparent and fair and can call us to account if we slip up.

BRITANNIA MEMBERS SAY "YES"

With a resoundingly positive member-vote at their AGM this week in favour of the merger with Cooperative Financial Services (CFS) our near-neighbours the Britannia open a new chapter in their history as they become a £70billion "super-mutual " with 9 million customers and over 12,000 staff. The Britannia /CFS merger has been a topic of much discussion amongst my business contacts and our staff here at The Hanley. The main question asked is;how will the merger impact The Hanley? My answer is simple; I fully understand the logic of the merger and the synergies between those 2 businesses, but we are a local building society with a fiercely proud intention of carving an even stronger niche as our competitors grow larger. The combined Britannia/CFS will be 200 times the asset-size of The Hanley and so it would be foolish for us to just mimic what they're offering. We will focus on our north Staffs roots and on our ability to offer genuinely tailored,personal service to each of our customers.....no call centres,no hierarchy , just a local,mutual building society working hard to earn and deserve the trust of all our customers old and new. As I said, simple really.....

HOW MUCH?

Watching the BBC coverage at lunchtime of the Chancellors budget my over-riding emotion was sheer incredulity at the size of the numbers quoted. Government debt to be funded by gilts and bonds will top £220 billion. I doubt I can really grasp what that number means, other than in terms of its relativity to previous levels of debt, and in that regard it is simply huge. All those zeros at the end of a few digits probably diminish the meaning for most people, but what is pretty clear is that it will take many years for the UKs ratio of debt to GDP to return to levels previously regarded as "prudent" and of course politicians will be focused on their own recipes for recovery. In a week where a ratings agency has reacted very aggressively to some rated building societies I wonder how well-protected the AAA rating of UK PLC is right now. Any threat to the reputation of our economy as worthy of investment will be very damaging, and not just for the government in its efforts to offlload all those gilts and bonds.

MICHELLE OBAMA IS COOL !

She electrified the teenage girls of the Elizabeth Garrett Anderson school in Islington yesterday when she dropped in on a surprise visit and Michelle Obama probably did more for their motivation and focus on learning than any amount of curriculum revision could ever do. She told the girls that "being smart is cooler than anything in the world" and urged them to "control their own destiny" by working hard on their education. Wow! So as well as being elegant, poised and graceful, America's First Lady is also blessed with leadership skills too.She knows that the post- G20 world will be a better place if more of our children can be urged to blossom through education.
Thankfully her husband seems like a cool guy too.