Staying mutual was ‘the right decision’ (From The Northern Echo)

Staying mutual was ‘the right decision’

8:32am Tuesday 15th July 2008 in

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Business Editor Owen McAteer talks to Newcastle Building Society chief executive Colin Seccombe about why remaining a mutual has had its advantages.

FOR a number of reasons the Newcastle Building Society never considered becoming a bank.

The wisdom of the decision, already reinforced by the credit crunch, was hammered home with yesterday's announcement that Santander is to take over the Alliance and Leicester.

At a time when many of the former building societies are feeling the strain, the Newcastle expects to announce 50 new jobs in the coming days as part of the 500 extra staff it still expects to take on in the next five years.

Chief executive Colin Seccombe's take on the advantages of remaining a building society have proved prophetic.

He said: "You can see that some of those who have converted have not been able to stay the course over a period of time.

"Abbey National's principal reason was to do a range of activities, as a consequence they are now part of Santander.

"For a number of other societies, there was a bit of a rush, perhaps driven by the egos of some chief executives at that time, because the law was relaxing and building societies could do broader activities.

"For us, it was never remotely a consideration. At the time we were a much smaller organisation anyway and you needed to be of a certain size to justify the cost of the conversion.

"Then you had the issue of having to be big enough to warrant independent existence after you converted.

"You look at those who converted - Woolwich is part of Barclays, we all know what has happened to Northern Rock and we have seen the difficulties of the Bradford and Bingley, while the Alliance and Leicester hasn't been without its issues in recent months."

Mr Seccombe admits it was very much a concious decision to remain as a building society when others were converting in the mid to late-Nineties.

He said: "Now, if anything, the events of recent months have reinforced the benefits of remaining mutual.

"People see building societies as much more prudent in the way we run the business and what we do and people appreciate that."

So how is Newcastle Building Society able to take on more workers in the present financial climate?

Quite simply, it has built more business in a way that does not involve taking on sub-prime mortgages.

The society has been paid to take on the processing duties of other banks and institutions, such as internet firm Icesave.

Mr Seccombe said: "We first got involved about ten years ago, but it has developed really rapidly in the last couple of years. At its core, it is the skills we have to run this business, the IT skills, our procedures and our staff capability.

"We set off by selling our IT facilities to financial institutions, typically smaller building societies.

"Our big step forward was linking with an internet provider - we were one of the first building societies to do that.

"We benefited because we have our own IT team who have built all our major systems. Unlike a lot of organisations, we are not dependent on a third party. We can change things more quickly than a lot of our competitors.

"It is that capability that has led to the expansion of this business."

It has also proved to be a profitable exercise for the Newcastle.

Mr Seccombe said: "It is great from a financial perspective, and at the moment, the roll-on effect is the employment opportunities it creates.

"On our existing range of contracts, we have 250 people working for us, effectively servicing these other organisations and their customers.

"It is an area where we see repeated growth and we are very close to being able to announce a new contract that will lead to the creation of 50 jobs straight away and as that contract grows, we expect to add more people to that.

"We are hopeful that over the next few months we will be able to make announcements about further contracts."

So at a time when former competitor Northern Rock is having to shed 2,000 jobs, the Newcastle is creating them and indeed expects to take on some former Northern Rock workers.

Mr Seccombe said: "A year ago, we said we wanted to create 500 new jobs over a five-year period. At the end of the first year, we have created 125 new jobs and that doesn't include these 50 new jobs, so we really do see the prospect of being able to create a lot of employment opportunities."

Although Mr Seccombe would never claim to have forseen the credit crunch, sound banking principles, not involving risky lending, have paid dividends in the long term.

He added: "This has shown the long-term benefits of being prudent.

"Some building societies were relaxing lending criteria to get involved in other areas of lending, with higher returns but higher risk.

"That is not a route we chose to pursue. This means in the past, when some building societies were growing by 15 to 20 per cent, we grew 7.5 to 10 per cent.

"Some people could say our growth was not adventurous, but I suspect a lot of these organisations with enormous growth plans now see us as the way to go."