Woolwich seeks deal to build on tech investment

John Stewart, chief executive of Woolwich, said yesterday that the building society-turned-bank needed to get bigger, by acquisition if necessary, to make the most of Open Plan, its hi-tech bundled loan, savings and current account. Open Plan was starting to win customers from the mainstream banks, he added.

John Stewart, chief executive of Woolwich, said yesterday that the building society-turned-bank needed to get bigger, by acquisition if necessary, to make the most of Open Plan, its hi-tech bundled loan, savings and current account. Open Plan was starting to win customers from the mainstream banks, he added.

The bank has had tentative merger discussions in the past with Bank of Scotland and more recently with Alliance & Leicester but has so far drawn a blank.

"It is a great technology that we could use on a bigger scale. You can't deny that being big would be an advantage. We're small and fast. Others are big and slow. The real winning combination is big and fast," he said. Since launch at the start of the year, 290,000 customers have signed up to the Open Plan, which allows customers to offset a variable number of products to achieve the most favourable interest rate. Half of them are from other banks. Woolwich has a target of 500,000 Open Plan customers by year end.

"We haven't been buying 100,000 customers at a loss and saying we will cross-sell to them. These are all on positive margin," he said. "Customers are taking more products and moving bigger balances across than we anticipated."

The higher marketing and advertising spend incurred since Woolwich geared up for the start of television promotion of Open Plan in June was the reason for an 8.4 per cent fall in pre-tax profits to £232.3m in the first half.

However, the City was encouraged by the fact that alone among mortgage banks Woolwich had pulled off the trick of increasing mortgage market share while maintaining interest margins at 2.08 per cent over the six months. Savings balances were also sharply improved. They moved from a net outflow of £719m in the first half of 1999 to a net inflow of £1.45bn this time. The shares rose 7.5p or 3 per cent to 259p.

Woolwich shares had underperformed the market by 8 per cent this year as analysts fretted that Open Plan would consume cash without yielding any tangible benefit to the bank's bottom line. There is also concern about the impact of IF, the Halifax-backed direct bank which is using the same offsetting principle to offer customers better deals, but this has dissipated somewhat after the glitch that delayed IF's July launch.

Mr Stewart is sanguine about margins going forward: "We are not trying to defy gravity. Margins are going south. But we saw this coming years ago and built our strategy around it."