VOLATILE, AGGRESSIVE AND MANIPULATIVE
Martin Vander Weyer argues that building societies, once called `friendly; now epitomise the worst aspects of modern financial whiz-kiddery WHATEVER happened to the building societies? Those high-street institutions, once comparable in unchanging social util- ity and absence of shop-front glamour to dentists' surgeries and funeral parlours, seem to have become the Madonnas of post-modern capitalism — volatile, aggres- sive and outrageously manipulative of their own self-image.
It is a spectacular example of what com- petition does to people who run compa- nies, even companies which have no entrepreneur-owners to drive them which indeed, being 'mutual' associations, have no shareholders at all in the strict sense. In the hothouse of the modern financial world, societies whose original names often included the words 'Friendly', `Permanent' or 'Co-operative' are trans- muted into a new kind of beast which may have more to offer to the sophisticated financial consumer, but to which none of those adjectives any longer remotely applies.
Evidence of the change is all around. Last Friday, the biggest building society, the Halifax, sent the mortgage market into turmoil by suddenly tightening all its terms for fixed-rate lending. In the same week, the tenth largest society, Bristol & West, announced that it had awarded a pay-off of £484,000 (plus a £150,000 'consultancy' contract) to its former chief executive, Tony FitzSimons, at the termination `by mutual consent' of his turbulent spell at the helm — adding, incidentally, a splen- did new entry to the dictionary of hollow resignation statements: 'He wished to be free to pursue, in other directions, his interest in the management of strategic change. It was in the society's interest to make it possible for him to depart . . '
Meanwhile, our television screens are filled with expensive advertisements for the Cheltenham & Gloucester (with Alan Whicker), the Leeds (with the long-run- ning George Cole as Arthur Daley), the Halifax, with exquisitely choreographed human bridges and wedding cakes, and most recently the Nationwide, which has taken image redefinition to a subliminal level by ending each commercial with the mannered voice of the actor Robert Pow- ell saying 'the building society' as though it meant something completely different.
It does, actually: it is all a long way from the origins of the movement, in Birming- ham in 1775, when workers drawn to the city by the Industrial Revolution began banding together to save for the where- withal to build houses for themselves, each member contributing regularly until all had been housed and the society wound up. By the mid-19th century, the system had evolved towards 'permanent' societies, at first small and highly localised, but gradually consolidating by merger into regional and national names; after which, in the best tradition of British institutions, nothing really happened at all until 1981. The societies were run throughout that period by worthies with narrow views and heavy watch-chains who might have wan- dered offstage from a J.B. Priestley play, and latterly by men like the late Sir Ray- mond Potter of the Halifax, described in his Telegraph obituary as 'modest and genial', 'conscious of [the movement's] social rather than purely commercial func- tion' and `by nature suspicious of change for its own sake'. As chairman of the Build- ing Societies Association in the mid-1970s, Sir Raymond spent his time defending his members' inclination to caution in every aspect of housing finance: this included mortgage-rationing (then thought of as anti-inflationary), and a cartel system of interest rates 'recommended' by the Asso- ciation.
But in 1981 the breeze of competition blew the dust off their Victorian ledgers. The clearing banks, tiring at last of the fashionable 1970s folly of Third World sovereign lending, turned to domestic mortgages as a safer-looking way of expanding their balance sheets, and began to compete in earnest for personal savings as well.
The societies, having thus surrendered access to a substantial piece of their territo- ry, pressed to be allowed a competitive response: it came to them in the Building Societies Act of 1986, which enabled them to issue cheque-books and credit cards and expand into related areas of business such as owning estate agents, and to obtain part of their funding (they are still pressing for more) from the wholesale money markets rather than purely from savers. It even allowed them to convert themselves entire- ly into banks, a path which only the Abbey National followed. Significantly, perhaps, the Act changed the name of the regulator: what is now the Building Societies Com- missioner used to be the Registrar of Friendly Societies.
Then, of course, came the boom of the late 1980s. Disdaining the accumulated wisdom of centuries of involvement in the housing market, the societies were as greedy and foolish as all the other partici- pants in the property prices fiasco. They lent ever higher multiples of the borrow- er's income — often accepting the borrow- er's optimistic or fraudulent 'certification' of his own income without bothering to check on it — and ever higher percentages of the supposed value of the property. To cover the top slice of the risk on such aggressive loans, the societies relied heavi- ly on mortgage indemnity insurance poli- cies, effectively passing the parcel of imprudence to the composite insurance companies.
By this means (and because home mort- gages, even in extreme market conditions, are actually by far the safest form of lend- ing, rather than because building societies have unusually clever managers) they sus- tained relatively little external damage. Only one major society, Town & Country, came close to going under — it was quietly absorbed into the Woolwich.
The end result of the competitive pres- sures and market swings of the past decade is a division of the building societies into two. leagues. The first is the group of household names which — relishing the current straitened circumstances of their clearing bank competitors — spend such vast sums on their advertising budgets. The second division, out in the provinces, is a scattering of small, unglamorous institu- tions like one whose headquarters I visited not long ago, in nondescript 1960s offices above a gas showroom, next door to the boarded-up hulk of what was once a famous department store, in a recession- blasted northern town where the only busy shops I could see were the pawnbrokers.
The man in charge of mortgage lending there was called Doug, smoked a foul old pipe and wore a dilapidated suit which might have been a bargain in a Burton's sale 20 years earlier. It would be a fair guess that there was very little he didn't know about the value of local housing or the sociology of local borrowers, that his salary was rather modest, and that his interest in the management of strategic change was probably confined to choosing new strains of giant leek to grow on his allotment.
But his is a dying breed. His type has been largely edged out of the picture by the likes of Mr FitzSimons — who came to Bristol & West in 1989 from the American giant Citibank, expanded its network unwisely in the teeth of the property crash and upped the stakes by overpaying ludi- crously for the Hamptons estate agency chain, Mr FitzSimons and his fellow big-shots of the building society world have enjoyed rises in salary and prestige commensurate with the inflation of their industry's self- esteem. Those rises have tended to be well beyond any measure of their increased profitability, or of any increased complexity in their core business — which, for all the Arthur Daley/Alan Whicker/Robert Powell hot air, remains the relatively simple busi- ness of lending people money to buy hous- es. But one of the ironies of the hybrid nature of building societies is that mutual ownership by customer-members is, in practice, even more passive than ownership by public company shareholders, allowing even more freedom to boards of directors to pay themselves whatever they feel they deserve.
The new model building society manager is not the wise old pipe-smoker who knows that business inside out, but the marketing- driven young exec in the Nationwide cam- paign, chanting the society's products around the atrium of its environmentally sexy Swindon head office and no doubt aspiring to his boss's £200,000-plus salary package. Or in a parallel manifestation of the same underlying sharpening of attitude, he is the hard man of the `olde worlde'- sounding Cheltenham & Gloucester, reported by many Citizens Advice Bureaus to have become the most brutal of all high- street lenders when it comes to enforcing repossessions. The C & G's profits were up this year by 55 per cent, and its boss, Andrew Longhurst, took home £373,000.
Competition and choice, we know, are good, even if they lead us into temptation. The transformation of the building society world — the imposition of a rampant com- mercial ethos on what was essentially a non-commercial system of mutual self-help — is on balance good for the saver and borrower, so long as he can pick his way through the maze of accounts and mort- gages on offer, and so long as he does not expect his building society to be any more benign, or consistent in policy, or uninter- ested in making a profit out of him, than his bank manager is. The smarter they are, the less friendly they become; that's the way of the modern world.
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