Warning of reform threat to mutual sector

Speaking at the annual BSA conference, outgoing chairman Graham Beale urged UK and European regulators not to compromise mutuals when they draw up new capital requirements for financial institutions.

Regulators have indicated they want institutions to hold capital instruments that pay dividends, which Mr Beale said "cuts right across the mutual model and compromises the interests of our members".

He told delegates: "The mutual sector must be regarded as a distinctive, proper, complete sector in its own right.

"We should guard against amended versions of capital instruments designed for the plc sector but which introduce to the mutual sector the instability that led to the destruction of many of the plcs in the first place."

In an interview with the Yorkshire Post, Iain Cornish, chief executive of Yorkshire Building Society, said: "Why should plcs be held out as examples for anything? We need a mutual-friendly capital instrument."

Mr Beale, who is chief executive of the Nationwide Building Society, said building societies could face further market distortion in the next two or three years as banks refinance to repay the government-backed special liquidity and credit guarantee schemes.

He said the merger process – which this year saw Yorkshire join with Chelsea and Skipton join with Chesham – has led to a strengthening, rather than a weakening of the sector. He said the precise number of building societies – 51 – is far less important than the strength of the sector as a whole.

Mr Beale added: "Set in the context of an unprecedented market environment, squeezed margins, unfair competition from heavily subsidised competitors, severe dislocation of funding markets – including intense competition for retail savings – and a rapidly declining mortgage market, mutuals have maintained extremely high levels of service, have resolved problem cases without material recourse to the taxpayer, have benefited less from government-funded schemes than their competitors and as a sector have remained resilient, contributing to the diversity of financial services and continuing to provide a competitive and real alternative to the banks."

He said the next government should support the mutual sector by amending the financial services compensation scheme, which places a disproportionate levy on mutuals, which have high levels of retail deposits, and modernise the Building Societies Act, which dates back to 1997.

Around 500 people attended the first day of this year's conference. Asked about the mood of delegates, David Cutter, chief executive of Skipton Building Society, said: "I get the impression people are quietly confident about the prospects for the next few years. Clearly there is a lot of uncertainty, starting tomorrow with the outcome of the general election."

Robert Parker, senior adviser at Credit Suisse, delivered an upbeat assessment in a conference seminar about the economic and political outlook.

Mr Parker said: "We are clearly out of recession. I don't think there is going to be a double-dip. I am not worried about inflation. However, we have to recognise that we are moving from an economy which two or three years ago was really out of balance and we are rebalancing that economy.

"The consumer is rebalancing. Savings are rising and consumer debt is being brought down. In the public sector we are going to have to face two, three, four years with public expenditure cuts plus tax increases. If the plan is presented in an intelligent and credible way to markets we won't have a Greece or Spain situation."

Mr Parker said he was optimistic about the prospects for British exporters in emerging markets and said the UK's corporate sector is in very good shape.

But Hamish McRae, an economic commentator, said the forthcoming fiscal consolidation would be "quite rough", predicted that Britain's credit rating may be downgraded and warned that 2010 could see three budgets.

Housing shortage a continuing problem

A serious under-supply of housing persists in the UK, the House Builders Federation told the BSA conference.

In a seminar about the housing market outlook, John Stewart, a director at HBF, said: "The future of house building supply lies almost entirely in the private sector. It's pretty obvious that public grant for housing is going to be savagely cut from 2011 onwards."

Martin Gahbauer, chief economist of Nationwide Building Society, said he is starting to see more properties come onto the market and predicted that house prices would lose some of their upward momentum as the year progresses.

He said that total mortgage lending for the next couple of years would be closer to last year's figure of 10bn than the 100bn lent in 2007.

Grenville Turner, chief executive of Countrywide estate agency group, said he expects to see a continued gradual recovery in sale volumes.