Skipton chief in attack on ‘funding junkies’

Speaking at the mutual’s annual general meeting, David Cutter told members that trading conditions in the wholesale money markets remain difficult.

He said the risk of “an almighty credit crunch” was averted by the European Central Bank’s decision to lend a trillion euros to more than 500 banks last year.

“This will buy time for the authorities, but the money remains repayable within three years coinciding with a regulatory timetable of further liquidity raising requirements so the problem is far from solved,” he added.

Mr Cutter, in charge of Britain’s fourth biggest mutual since 2009, assured members that despite the threats facing the financial services industry, Skipton Building Society is in good health.

“We have strong capital, a well diversified business model and confidence in our future,” he said.

Mr Cutter added: “Earlier this month we repaid all our [£650m] funding that was guaranteed by the Government in the wake of the credit crunch.

“Having previously repaid what we borrowed under the special liquidity scheme, we are now totally free from any mechanism of central bank or government support, unlike so many continental banks who now seem to be funding junkies on life support from the European Central Bank.”

Mr Cutter said that the group’s estate agency business, Connells, has increased sales by six per cent this year compared to the same period in 2011 and the core mortgage and savings division has returned to profitability.

He expects to reduce gross lending by a third this year and profits to improve.

Last year, the society boosted lending threefold to £1.7bn, but saw pre-tax profits fall by more than a third to £22.2m as it doubled the amount of money set aside for potential losses and paid out nearly £6m to the Financial Services Compensation Scheme.

He does not expect to see any rise in interest rates for the next two years.

Mr Cutter said: “Monetary policy in response to the financial crisis has resulted in negative real interest rates for savers.

“No wonder they feel the forgotten victims of the credit crunch. But we are acutely conscious of their plight. Despite base rate remaining at 0.5 per cent, we increased the average rate paid to our savers last year from 2.42 per cent to 2.56 per cent.”

He added: “The Governor of the Bank of England has repeatedly gone on record to say that the imbalances in the economy built up during the boom times need to re-adjust.

“He believes this will be achieved by a very low base rate, giving rise to a competitive base rate thereby giving a boost to our exports.

“It will also help individuals and businesses to pay down debt and by strengthening manufacturing it will help to reduce the UK’s over-reliance on the financial services sector.”

Mike Ellis, the new chairman, said Skipton has “one of the smallest margins in the building society movement because of what we pay our savers and what we charge our borrowers”.

The former group finance director of Halifax Bank of Scotland told members: “The economic news can be depressing with the eurozone crisis, low growth or a double-dip recession, low interest rates for the foreseeable future, which is a problem for many savers, and our cost of funding, which is well above bank base rate.

“In general, we would say UK households are under pressure, but we believe we are well placed to weather the storm and continue to provide a valuable service for our members and communities for many years to come.

“We have taken steps to further strengthen our funding base with our inaugural securitisation issue and other secured funding which in total raised more than £1bn of medium-term funding and enabled us to further reduce our use of less stable short-term wholesale funding.”

Mr Ellis added: “We stand on our own two feet and we aim to continue to do so.”

More than 50 members attended the AGM at the society’s head office at The Bailey.

They asked questions about executive remuneration, the underlying financial health of the group, the backgrounds of the new non-executive directors and how long they have been members of the society, the meagre returns for savers and board diversity.

There was also some praise for the group. One member said: “I would like to say how much I enjoy walking into the building society and how well they look after you.”