The building societies had their annual shindig in Birmingham last week and you would think that their mood would be upbeat.
After all, surely this is the time for the mutuality concept; with so much continued disillusionment with the banks and bankers – who would surely even lose an election to a Lib Dem councillor.
But not a bit of it, the building-society sector is facing fresh challenges, in their own way as great as the financial crisis of 2008. A wall of regulation is heading the sector's way – particularly relating to mortgages – which is going to add hugely to the societies' costs and make it even more difficult for small and medium size societies to obtain funding from the money markets.
Also, when interest rates start to rise, I can see a dash for fixed-rate deals, and if the societies can't access the money markets then they won't be able to offer the deals that are necessary to retain market share. The upshot could be that small and medium-sized societies wither on the vine, and the more precarious their lending books look the more likely they will be swallowed up by their larger brethren. In the 1990s and 2000s, the risk to the diversity of the mutual sector came from the carpetbaggers and the lure of the stock market. Now, it comes from mergers. Just when choice and localism should be something to be nurtured in our financial sector, they are poised to come under attack.
We've already had a host of mergers – the latest proposed one between the Yorkshire and the Norwich & Peterborough building societies – and more will inevitably follow. I can honestly see a time when we have a dozen or fewer building societies in this country, and we will sadly lose jobs and diversity.
It's ironic that a financial crisis brought about by the banks is likely to have such a major, long-lasting impact on building societies. When the banks do well, the carpetbaggers want the societies to convert; when they do badly, they queer the pitch for the societies to such an extent that merger is the only way for some.
The mutual sector is in desperate need of a fill-up. One suggestion from Yorkshire Building Society's chief, Iain Cornish, is for Northern Rock, once it has paid back taxpayer loans, to be remutualised. At a stroke, the mutual sector will have a major new player with a strong regional base and, hopefully, a very different ethos from the last incarnation of the Rock – remember the 125 per cent mortgage? Mr Cornish is backing a Commons Early Day Motion to this effect, signed by more than 100 MPs.
This motion keys into the coalition agreement which states that promoting mutuality is a major part of creating a more competitive banking industry. The time of the small and medium-sized mutual may be passing – which is sad for loyal customers and staff – but the concept of a financial institution owned by its customers rather than shareholders is one which mustn't be allowed to perish.
A lot of building societies have been badly run in the past (just like the banks) but we need a buoyant mutual sector. However, the concept needs a bit of backing and what better way than remutualising the Rock?
Justice over PPI is at hand
Maybe it's the fact that the taxpayer is a major shareholder, or there is a new chief at Lloyds wanting to look like the new broom, but the decision by the banking giant to finally drop its fight against payment protection insurance (PPI) compensation is a massive boost to millions of wronged consumers.
The British Bankers' Association still has a few days in which to lodge an appeal against the High Court's decision that compensation is due, and no doubt there will still be some hawks wanting to fight on. However, without Lloyds, with its 35 per cent market share, surely the seemingly endless battle for justice is nearly over? As I've stated previously in this column, the banks' PPI case is far less robust than the one they famously won relating to bank charges in 2009. In short, they don't have a leg to stand on, and, with Lloyds' decision, the others should see sense at last.
One concern I have, though, is that the compensation that the banks are being ordered to pay to individuals (which may top £10bn across the industry if what Lloyds has set aside for PPI mis-selling claims is anything to go by) may not be enough to cover the real losses suffered by some individuals. I had an email the other day from a PPI victim who had been signed up to the overpriced, useless insurance without asking for it on a credit card (and such an act could be deemed criminal fraud in any other walk of life). He has received compensation, plus interest at 8 per cent, but he was paying interest on his card at 19 per cent, and this included the PPI premiums. The banks should also have to return any interest they charged, rather than some arbitrary lower figure.
As for RBS chief Stephen Hester's warning, issued on Friday, that all this will have a material effect on his and other banks' bottom lines, I have one word in response – tough.