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Building societies caught between Rock and a hard place
YORKSHIRE Building Society has weighed in with Leeds Building Society following my story last week about the impact that the state-owned Northern Rock is having on the retail funding market.
Yorkshire's chief executive Iain Cornish, who is a council member of the Building Societies Association, told me yesterday that he "completely agrees" with Ian Ward's verdict on the Rock.
Mr Ward, of Leeds Building Society, argued that the nationalisation had distorted the market place for retail funding and called on the European Commission to see whether competition laws have been broken.
He cited data which showed that Northern Rock and Treasury-backed National Savings & Investments took 70 per cent of retail funding in the second half of 2008.
Mr Ward also urged the Government to lower the cost for mutuals to access wholesale funding under the credit guarantee scheme.
He claimed that the cheaper rates enjoyed by the state-backed Lloyds Banking Group and Royal Bank of Scotland is creating further market distortion.
Mr Cornish said: "You have got this institution out there which carries an explicit guarantee that the rest of us don't benefit from.
"If you look at the volume of savings that Northern Rock and NS&I have attracted between them, it is a substantial chunk of the savings market.
"Either we have to pay more or we watch the savings go to Northern Rock."
Mr Cornish, the head of the UK's third biggest building society, added: "Ultimately, what that does is contain our ability to lend more.
"One of the things that the Government wants to happen – which we all want to happen – is for more mortgages to be available and that's quite difficult while Northern Rock exists in its current form.
"We are not asking for any favours here. We simply think there should be a level playing field. The support that is available to Northern Rock should be available to societies and other lenders on similar terms.
"The Government funding arrangements that are available to societies are a multiple of the cost that are made available to rescued banks."
Industry figures claim that Nationwide, the largest building society, must pay 65 per cent more than Lloyds and 35 per cent more than RBS under the terms of the scheme, while Leeds Building Society must pay even more.
Skipton Building Society is also asking for a level playing field. Tim Fletcher, the general manager for products and marketing, said: "In a world where people are driven by safety, they will pursue those institutions with actual or implied state guarantees, which explains the success of NS&I, Northern Rock and some of the major clearing banks in attracting new funds over the past year.
"The Government needs to consider how to extend such implied guarantees to other savings institutions so that there is then a level playing field between all participants and not just the favoured few."
The European Commission is carrying out an in-depth investigation into the UK's aid measures for Northern Rock.
It was forced to extend the scope of the inquiry in March when the Government announced new plans to split the Rock into a 'good' bank, which would continue commercial activities, and a 'bad' bank with most of the previous mortgage loans, which would be wound down.
The commission has expressed doubts that the aid measures are compatible with the common market and cannot see if the "distortions of competition outweigh the positive effects of the aid".
The plans also indicate that the state guarantees could remain in place until 2013, a galling prospect for rivals that depend on retail deposits.
So, unless there is significant change, the playing field will remain uneven for some years to come, which could in turn lead to more consolidation in the building societies sector.
This is hardly fair for a group of financial institutions that has, to date, keep its nose relatively clean when compared to some of the grotesque excess elsewhere in the market.
Last night, a Treasury spokesman said the Government would work through any competition concerns after the commission's forthcoming consultation on its plans.
It should expect some from Yorkshire.
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Saturday 11 February 2012
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