The credit crunch has not been bad news for everyone in financial services. Building societies, what’s left of them after the demutualisation decimation of the 1990s, are seeing their coffers swell.
Is this just a last hurrah for a financial anachronism, as frightened investors seek knee-jerk safety in the ultimate among conservative institutions? Or are building societies in fact reaping the reward for eschewing “unrestricted” City capital and sticking to their unexciting positioning as a place of safety and trust for your mortgage and household savings?It’s a mixture of both, of course. But the exact ratio of happenstance and carefully matured strategy will have an important bearing on the outcome for the sector.
First, a quick snapshot of the market. Almost all the great names of yesteryear, if they exist at all, enjoy at best a dingy twilight existence as adjuncts of a bigger bank brand. Cheltenham & Gloucester, Woolwich, Bristol & West, Abbey National, Birmingham Midshires, Northern Rock and now Alliance & Leicester have all lost their independence as a result of demutualisation. Bradford & Bingley looks to be going that way. Though troubled by the present turmoil, Halifax alone can be said to call the branding shots in its relationship with the rather anaemic Bank of Scotland.
That has left Nationwide in what appears to be a formidable situation. Among the 59 societies that remain, it holds about 50% share. Ostensibly, Nationwide’s positioning – exemplified by the Mark Benton comic routines in Leagas Delaney’s advertising campaign – is ill-considered. It breaks a golden rule of branding: don’t base your positioning on a negative. But then, it’s in a unique position to do so and get away with it.
It can join the rest of the building society sector in challenging the cold impersonality of the high street banks with the warmth and friendliness of a mutual. Yet, alone among them, it has the capital resources to take the banks on at a national level.
Even so, there may be problems ahead. Being much more reliant on savings for its capital than the likes of Northern Rock, Nationwide has successfully weathered the first cycle of the credit crunch. But what if savings take a hit during a prolonged downturn, as they are prone to do? Unlike banks, the mutuals cannot exploit City money (for example, through rights issues) to prop up their balance sheets. It is in this light that Nationwide’s attempts to emphasise the diversity of its products’ appeal should be seen, not to mention the foray into Ireland in order to widen its retail deposit base.
If Nationwide perceives problems ahead, how will the rest of the sector cope? A report this week from management consultants KPMG suggests not very well. Disillusionment with the high street banking system, it says, will have little impact in offsetting a further round of consolidation among the mutuals. Though Nationwide may well be the chief beneficiary of it. See Feature, page 20