Despite recent ‘mergers’, the mutual model isn’t broken, argues Phil Whitehouse, head of The Mortgage Alliance (TMA)
The word merger is one that has become all too common across many industries and is certainly one that has become an increasingly familiar within the building society community.
Historically – according to that fountain of all knowledge Wikipedia – the forebarer to what we are currently experiencing was The Great Merger Movement.
This was predominantly a US business phenomenon that occurred from 1895 to 1905. During this time, small firms with little market share consolidated with similar firms to form large, powerful institutions that dominated their markets. It is estimated that more than 1,800 of these firms disappeared into consolidations, many of which acquired substantial shares of the markets in which they operated.
When looking at the history books much closer to home there were an impressive 1,723 authorised building societies registered back in 1910 with total mortgage assets amounting somewhere in the region of £60million. By 1950 this number had dropped to 819 but mortgage assets had risen to £1,060 million. By 1980 mortgage assets were up to £42,437 million as society numbers continued to decline – 273.
It’s evident the building society sector is one that has seen its fair share of ups and downs and the recent economic turmoil has certainly seen a number of good institutions fall by the wayside. Indeed, looking at the current statistics from the Building Societies Association – with balances updated with data to end of December 2009 – the number of building societies stands at 52 with total assets amounting to £335 billion including mortgage assets of £225 billion.
This total – in terms of institutions – is destined to continue to fall and this is especially apparent after the recent announcement that the board of Stroud & Swindon Building Society has agreed to merge with Coventry Building Society, the UK’s third largest building society.
The merger, which is subject to the approval of Stroud & Swindon’s eligible members as well as confirmation by the FSA, is expected to become effective on 1 September 2010. With both societies’ currency operating intermediary only brands – Stroud & Swindon has In The Loop Mortgages and Coventry has Godiva Mortgages – it will be interesting to see the repercussions for the intermediary market as both have proved themselves to be good, innovative lenders.
Let’s hope that this combined strength will see either both brands or a single proposition be in a position to offer even greater support and competition to the broker market. Of course this proposed merger follows the Yorkshire Building Society and the Chelsea Building Society announcement late last year that they had agreed to merge to create the UK’s second biggest building society.
There is little doubt that building society sector will continue to see numbers dwindle but this doesn’t necessarily mean that this is a bad thing and that the mutual model is broken. Looking further ahead and there are a number of variables to take into account when analysing any future mergers or consolidation.
Such as how long funding issues last, how strong is an individual building society’s business models and how healthy the balance sheet is amongst others. As with all firms operating in the mortgage market this sector will have to manage the ongoing pressures and cycle of how to make sustainable income whilst running branches and improving the business infrastructure. This is not even to mention rebuilding balance sheets and trying to squeeze costs to pacify all stakeholders including the FSA. But as a historic bedrock of the financial services sector it is important that such institutions remain both for brokers and for their members.