My first job as a financial journalist was covering British building societies, so the nationalisation of Bradford & Bingley £42bn mortgage book, with Banco Santander favourite to take on its £22bn of retail deposits and its 200-branch network is a striking event.
I used to write about building societies under the guidance of Robert Peston, who was then (in the early 1990s) banking editor of the FT and is now business editor of the BBC. So his assessment interests me:
The nationalisation will be seen as proof that the demutualisation of building societies – which began when Abbey National became a bank in 1989 – has been a colossal failure for both the former building societies and the British economy.
These specialist mortgage lenders were under such pressure to grow their profits, as public companies, that they became reckless adventurers in wholesale funding markets.
I think that is correct. Many of the building societies struck me at the time as being self-satisfied and complacent, largely because they had an very well-tested and safe way to make money. They simply maintained a spread between what they paid on retail deposits and what they charged for mortgages.
The business, in fact, approximated to the old saying about the banker: that he paid interest at three per cent, gave out loans at five per cent and was on the golf course by four o’clock. Read more