Many Building Societies rushed to demutualise in the 1990’s with the biggest Building Society in the world, Halifax, managing the feat in 1997. The main reason given for becoming corporate was to allow them to access capital more freely and grow quicker. The bank, as it became, then merged in 2001 with The Bank of Scotland and had joint assets of £300 billion that, as they had predicted, grew to £541 billion by 2005.
But I seem to recall at that time, Northern Rock were doing particularly well with 125% mortgages and they had become the darlings of the financial press. They appeared to be able to lend up to 125% to higher risk customers, give cashbacks and yet had a very low cost base and hardly any arrears. I remember James Crosby, the Halifax boss, being irked about the market share they were taking and resolved to take them on by lowering margins.
So they decided to grow faster and even when Northern Rock’s too good to be true performance was proven to be just that, when in September 2007 they went bust, The Halifax just carried on regardless. It appears that their attitude of rapid growth had taken hold throughout the business leaving bosses struggling to rein in lending, with assets having ballooned to £705 billion in 2008 just before they were overwhelmed by their losses in October 2008.
This sad chapter of financial history has been brought to the fore again as The Bank of England has published its long awaited report about what went wrong at The Halifax. It appears that they had the wrong staff with little banking experience amongst decision makers. It also appears to have a culture that covered up failing and seemed to find it very difficult to slow the business once they could see problems. I believe also they were overly optimistic by nature and could not fully appreciate the risks they were taking with the business.
Although by and large in my opinion most bankers got off with very little punishment when we consider what happened in the banking crisis, we still suffer today as a result of their actions. By this I don’t mean the taxpayer bailouts that were needed as they were to big to fail, but the state and shape of the mortgage market we see today. The market is no longer dominated by the Building Societies such as The Halifax Bradford and Bingley, Alliance and Leicester, The Abbey, The Woolwich and The Leeds that populated the high streets but by banking institutions that are centralised. Most of the big Building Societies disappeared once they had demutualised and also decision making was taken away at a local level. So we are left with a tick box mentality that makes it impossible for mainstream lenders to step outside of very narrow confines. I feel that because of the very high risks taken by banks in the past, they feel unable to take any risk at all now, and rather than use the personal touch that we had with the Building Societies would rather entrust lending decisions to a machine linked to a credit report.
Kieron Basset DipPFS, Cert SMP
23rd November 2015
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