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Mutuals going to the ball

“Mature, well-endowed Mutual WLTM trim attractive partner. Must have GSOH and a specialised lending division”. Perhaps not how it happened, but nonetheless the intriguing union between Nationwide and Portman announced last week carries significant portents for many.

If the building society sector was a dance floor then Portman is its Fred Astaire. Tangos and waltzes with both Lambeth and the Staffordshire clearly encouraged other suitors and I reckon the likes of the Yorkshire amongst others are now gazing ruefully at a happy couple whose nuptials could be good news for all, especially intermediaries.

The deal has some fascinating facets and ironies. Both Nationwide and Portman have been personae non grata with intermediaries in the past. The latter with its dual-pricing policy and the former with its unwillingness to involve brokers in retention practices.

No matter. The new organisation looks mean and strong – and those are just adjectives for the P&L account and the cost-income ratio once natural wastage and some inevitable streamlining takes place. What I’m excited about are the products.

A lender now bigger than Abbey or Lloyds TSB should be able to deliver cutting edge-products. Both mutuals have proud records on mainstream suites and it will be interesting to see how Nationwide now approaches the re-emerging first-time buyer market.

The specialist side is more interesting. UCB is a stalwart lender and a respected industry pioneer. But TMW is the groovier and more contemporary mover and has some market-leading dimensions which its partner doesn’t. It was bold and innovative with its BTL 009 product and its growth is a credit to Messrs Sharpe, Wyles and Howard who have demonstrated that a mutual that once had to refer applications above £500k to its board can embrace new-age intermediary requirements and bring about internal culture change.

No guesses then as to which brand I believe should now become the Nationwide’s intermediary arm. In doing so, Nationwide must engage more with a distribution channel which is enlarging and not receding (as it’s recent 2005 net lending performance testifies). Some of its intermediary plays in recent years have been interpreted as either tokenist or indeed begrudging. Who shapes the credit policy of the new group is now a critical question.

The merger has numerous consequences. HBOS now has someone else in its rear view mirror. I doubt HBOS will lose any traction but the new challenge will help to keep it honest. If a competitor makes 2007 a second successive annus mirabilis for it then we will all benefit.

Adolescent specialist lenders may be less pragmatic. If the outcome of the TMW-UCB exercise enhances Nationwide’s specialist offering (and a bigger balance sheet will surely provide greater capital for specialist lender investment) then some of the new players and smaller societies in the mutual sector could be in for some tailgating.

Finally, more mutual love-ins are inevitable. These may not feature the Earl Shilton or the Colesley but mutuals ranked between, say, numbers 10 and 30 may be practicing their foxtrots in front of the mirror.

With retention strategies conspiring to reduce market size and, given where we are in the property cycle itself, there may be markedly less business to go around for all from 2008 onwards.

Kevin Duffy is managing director of Hamptons International

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