The Interview
Newbury Building Society boss Roland Gardner
ROLAND Gardner was appointed chief executive of the Newbury Building Society in January last year after a 20-year career with the organisation. He talks to Richard Maynard.
ROLAND Gardner took over from Nigel Fleming as chief executive of the Newbury Building Society in January last year, only months before the credit crunch began to bite.
“It’s been quite challenging,” he said. “I’m enjoying it because you get involved in the whole business, rather than just your particular sector of it, which was what I was doing before. I was in charge of the customer service area, which was effectively the lending side and the IT department, whereas now I have to be involved in the sales and marketing, and budgets, which is what I did historically, and the finance side.”
Describing the role as “challenging but enjoyable”, he said that the Northern Rock crisis which blew up last year had prompted a change of strategy in a number of ways. One measure was to restrict lending to customers within a 40-mile radius of Newbury.
“At the time Northern Rock happened we had a significant amount of lending waiting to complete, and the cost of raising the funds to meet that lending suddenly skyrocketed. So we contracted quickly then, to make sure we didn’t take on unprofitable lending, as otherwise would have happened. Around Christmas time, we went back to our normal lending policy, which is anywhere in England and Wales, but by Easter money got sufficiently tight again that we chose to come back to our own operating area. But on the Thursday before Easter, our Newbury branch took 45 broker-based enquiries that afternoon, which, had we completed them all, would have almost been a month’s lending, so on that basis we had to do something or the service would have just disappeared completely.
“Service levels are a real problem when there’s a shortage of supply, because those who are supplying are much sought after. We have competitively-priced products given the current marketplace, and although they are traditionally higher than the bank base rate than you may expect, the bank base rate has really become completely detached from the world of savings and mortgages at the moment.”
Mr Gardner admitted that the society had tightened its lending policy slightly. Only customers who have invested for two years will now qualify for a 95 per cent mortgage. “That really bucks the trend, where virtually all lenders have pulled out of the 95 per cent market, because they see it as high risk when prices may be going down. But we insure loans above 75 per cent, and our insurers are very happy with that policy, which means that we can still serve local first-time buyers, which I think is very important and very much part of the rationale behind the business.
“We also do 95 per cent on shared ownership, which is probably the main first-time-buyer vehicle now, given the price of property.”
Did he think that the credit crunch would get worse before it got better? “Our trade body, the Council of Mortgage Lenders, is predicting 45,000 reposessions this year, as opposed to 27,000 last year. But we’ve not seen that at all, because we lend prudently. I think the market got completely out of control – well really over the last 10 years but it reached a peak last year – where 125 per cent loans were being done, and self-certification, which is what the Americans call ‘liars’ mortgages’. We just don’t do that, and as a result we don’t have people over-committed and struggling to pay their mortgages.
“Newbury is supposed to be one of the higher debt towns in the country, but we’ve got almost no arrears at all compared to anybody. We’re about a quarter of the national average for loans above six months down.”
Newbury Building Society has steadfastly remained mutual – owned by its members – while many other societies sold out to banks, and it will continue to be so. “It’s one of our five strategic mission statements – to be a mutual,” said Mr Gardner. “We’ve seen significant competitive advantage from not having to pay shareholders, which is essentially what mutuality means. As I see Newbury Building Society, it would get swallowed up immediately. There is no way it would exist as an independent entity, which is what I think the people of Newbury benefit from.
“As a mutual we only have to answer to our members and try to interact with them in various ways to make sure we give them what they’re looking for. The key element to mutuality is not having to pay so much for your capital, which is what the banking sector do. I think some of the building societies that converted to banks in 1997 are regretting that decision.”
What did he think made Newbury Building Society unique among its competitors? “We’re local, we’re mutual, we compete on price, the service we provide, and we’re financially strong,” he said. “Those five reasons are what we are about.”
The society currently has nine branches, and a 10th is being considered. “If Northern Rock has taught us anything it’s the value of the retail saver, and retail savers like to use our branch network.”
He continued: “I feel we give the people of Newbury a choice that a lot of towns don’t give to their public. The nine towns where we have branches all have an additional choice for their financial services in a way that so many used to have but have now gone. There were 2000 building societies at the peak at the turn of the 20th century, and 150-ish societies in 1987 when I joined here and 57 today.”
After 20 years of doing business in Newbury, what is the biggest change he has seen? “The financial services industry has evolved dramatically in the last 25 years. In the 1960s and ’70s, Newbury Building Society was only one of two places where you could get a mortgage. The management could be relatively demanding on the conditions on which you could get a mortgage. When I first started, I found that a bit of a barrier to overcome, because some people remember being rejected when they thought they shouldn’t have been.
“Now with so many players in the market, and competition from foreign banks and the internet, it’s a completely different financial services environment from the one I saw back in 1987 when I first turned up here as a fairly callow youth.”
Now aged 48, Mr Gardner was Newbury branch manager for 12 years before moving to the organisation’s head office in 1999. Before joining the society, he worked for HFC Bank. It was, he agreed, a very different culture.
He does not, however, anticipate, taking the society in a radically different direction. “As I see it, there are three strategic directions we could go down. One is merger – you merge with another building society, smaller or bigger than us, but it’s inherent with risk, and there isn’t really a good geographical fit. So I think that one is not really on the agenda.
“The second possibility is to diversify, to something like estate agency, which some societies have done.There are ways of generating income from non-traditional mortgage businesses.
“The third way, which is certainly my preferred method, is to what you’re good at and perhaps do a bit more of that, hence the discussion about whether we should have another branch or not, and whether we can get little more from out existing client banks – we don’t provide all the services to our clients that I would like to provide at the moment, and it’s a matter of making sure they understand what we offer and how we offer it.
“I feel very much that the board, in appointing me, wanted me to do more of the same, but evolve not revolve. I call it evolution not revolution. The best way for me to do that is so do what we know about and what we’ve done for 150 years and what we do well. That fits with the board’s strategy and mine. We’re not looking to do anything too clever or flashy. That may be what caused Northern Rock’s demise, ultimately.”
Since the Northern Rock crisis, he sees the biggest challenge as maintaining liquidity at a level that keeps the Financial Services Authority happy. The society has increased its cash holding “just in case”, which means that it does not provide the income it otherwise would.
What is he most proud of achieving at the society? “I’ve probably had more to do with the lending policy over the last 15 years than any other individual, and it’s been prudent but never-the-less progressive.” He said that the society’s current position today, with virtually no arrears, a performing book with low loan-to-values, was a position which most lenders “would die for”.
“I see my role as custodian from the previous generation to the next generation, and I want to hand over the society to my successor in at least as strong a financial shape as I inherited it, because the reserves of the society belong to the people who have invested for 150 years, and it’s their children who should benefit from it moving forward.”
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