ONE of the problems with people talking about you is that you don’t get to choose the nicknames that follow you around.
You might have grown up with a burning desire to be known as something dynamic and moody at school, but it only takes one person to notice your skinny legs and you’re dragging around a snappy millstone for several years.
That’s effectively the fate that befell Northern Rock Asset Management on January 1 last year when the Government split a damaged bank into two. The savings and mortgage bank known as Northern Rock plc was encouraged to make itself attractive to a private sector suitor down the line, while its sister Northern Rock Asset Management was ordered to remain in the public sector and clean up its collection of mortgages and “toxic” unsecured loans.
That’s not the sort of language you get away with spouting in the street or on the soapbox, so Northern Rock plc became “the good bank”. NRAM morphed into “the bad bank”.
On October 1, NRAM and Bradford and Bingley fell under the management of holding company UK Asset Resolution, fully-owned by the UK Government.
UKAR’s task is to repay a debt of £48.7bn to the Government while working through a mortgage book totalling £36bn from Bradford and Bingley and £48bn from Northern Rock. It is the country’s fifth largest mortgage provider, but cannot grow that business.
The task of leading this organisation falls to Richard Banks, a former Alliance and Leicester director who joined Bradford and Bingley in May 2009.
“The most obvious difference is when I get in on a Monday morning, I don’t demand to know what the sales figures are from the previous week”, he says.
“I haven’t got sales departments selling new products. It’s quite a bizarre experience after 30 years in banking in which everything has been about selling.”
Stockport-born Banks left Manchester Polytechnic with a business studies qualification, stepping into Midland Bank and then Girobank before beginning a two-decade spell at Alliance and Leicester. The two parties split soon after the company’s buyout by Santander, after which Banks was brought into Bradford and Bingley. A little over a year later, he was in charge of NRAM, a challenge he says suits his expertise.
He says: “If I had to characterise my skill set, I would say that I’m good at fixing things and preparing them for something else. This job is basically to wind down the organisation and make it as efficient as possible.”
Late last month, the organisation announced both Bradford and Bingley and NRAM had returned to underlying profit of £200.1m and £277.4m respectively in 2010, compared to losses of £166.5m and £313.4m in 2009.
UKAR’s over-arching aim is to reduce its mortgage book, but it is also spending £68m to bring the IT up to scratch and develop effective systems for mortgages and arrears management, a move it hopes will produce annual cost savings of around £40m.
It has a ten-year plan designed to pay back “the majority” of the Government debt within that period, but the Government has not imposed a time limit on how quickly it wants its money back.
Banks says: “NRAM repaid £1.1bn of government debt in 2010, and every pound of available cash we have goes to repay the Government.”
Banks argues the challenge is a little more complicated than just making a big pile smaller. In 2010, the number of accounts more than three months in arrears dropped from 19,159 to 13,096 at Bradford and Bingley but increased from 24,625 to 25,419 at NRAM. The number of properties in UKAR’s possession dropped from 962 to 623 at Bradford and Bingley and from 2,061 to 1,984 at NRAM in the same period. However, Banks expects that number to rise again by the halfway point of this year.
He says: “VAT has increased 2.5%, taxes have gone up, unemployment is increasing and you’ve only got to go to the local petrol station to see what’s happening to RPI. Even before interest rates increase, there are significant impacts on people’s disposable income.”
This situation creates a demanding and delicate situation for the 2,400 staff employed by UKAR in Yorkshire and the North East, including 724 in Gosforth and 526 in Doxford on Wearside.
“It’s a case of finding the right solutions”, Banks says. “The last thing we want to do is repossess a property, but in some cases customers are in such difficult circumstances they need to exit the housing market because they’re just increasing their indebtedness.
“We have to run the business partly as a commercial business, treating everyone fairly. We have the Government as shareholder and creditor, but we also have other creditors.
“There are rules around how a bank goes about managing arrears. You don’t go straight for a repossession.
“We apply a set of principles around the customer’s income and expenditure and judge whether it’s a short-term or long-term problem and what’s the best resolution for them and us.”
At several points in the interview, Banks is keen to make distinctions between customers on UKAR’s books.
“Roughly 90% of our customers are repaying their mortgages in the natural course, up-to-date and on a monthly basis”, he says. “That gives the lie to the pejorative phrase ‘bad bank’. However, 10% are struggling.
“That underlines that much of the lending was done at a time when the incomes and property prices were increasing and a lot of these customers are now in a much more fragile position.
“When Northern Rock and NRAM were split, all the customers in arrears were left in NRAM so Northern Rock was seen to be clean. But that doesn’t mean it’s got lots of toxic assets. It’s just that many of these loans would not have been granted today. The loan-to-value is wrong and it’s not affordable.”
We’re now edging toward the point in the conversation where it’s time to ask about blame. More specifically, could he pick out any behaviour that sent the financial rollercoaster hurtling into decline from 2007, notably after the run on Northern Rock which ended up under state control?
“I think anybody with any sense of reality realises house prices couldn’t keep on growing for ever and the economy wouldn’t keep on booming forever”, he replies.
“However, I don’t think anybody realised just how bad it could get. What happened in 2007 was so unthinkable that no one planned for a scenario like that.
“By the time you got to 2007, the die was cast. Organisations that were highly dependent on wholesale funding found it very difficult to survive the closure of the wholesale market.
“Some of the things you saw in the marketplace, such as the high instance of self-certified products, I wouldn’t have done myself.
“But it’s easy to talk with hindsight and it’s not very useful looking back now.
“If there was one observation about banks I became more frustrated about, it was the focus on sales and marketing. There was far too much focus on selling and continuing growth, and far less on risk management.”
However, he believes the situation was also a result of a modern cultural mindset.
He says: “I see the letters of complaint, and some of them are very sad. People have suffered through illness, death and unemployment and they’re really trying.
“Then you’ve got the people who are just trying it on, because they know going through the procedure elongates the process. Eventually, however, it all catches up with them.
“You see people who’ve racked up thousands in credit card debt recklessly and you ask, ‘What planet are you on?’.
“Over the last 20 to 30 years we’ve created a consumer society which doesn’t understand the value of saving before you actually spend.”
While UKAR’s mortgage book will not just disappear in the next year, there is an acknowledgement that – as the book reduces – there will be a need to reduce the workforce.
Banks says the company has pledged that all staff should receive five days of training a year to develop their skills. However, he muses there might be a chance to continue UKAR in some form if it can make itself an expert in managing debt.
He says: “We’ve got around 2,400 people across the organisation who are potentially working themselves out of a job. We know at some point there will be no mortgages because that’s our job.
“We think it’s a good thing staff get some transferable skill sets, so if their future no longer lies with UKAR they can get good jobs elsewhere. However, one idea which is a glint in the eye is that if we’re very good at what we do as a low-cost provider, we could provide mortgage services to other players at some future date.
“Under the state aid subsidy rules we can’t do business for anybody else, but there could be the possibility of selling the operating company into the private sector again or prolonging the life of the company in some way. But that’s something in the back of the mind.
“If I can leave it in good hands, I’m happy with that. One of the great skills of a leader is to be able to pass on the baton to someone else at the right time.”
What car do you drive?
What’s your favourite restaurant?
Malabar Junction, Great Russell Street, London
Who or what makes you laugh?
What’s your favourite book?
The Tin Drum or The Road
What was the last album you bought?
What’s your ideal job, other than the one you’ve got?
The best job I ever had was a porter in a hospital
If you had a talking parrot, what’s the first thing you would teach it to say?
Clean your own cage
What’s your greatest fear?
Not doing my best
What’s the best piece of business advice you have ever received?
You can only ever do your best
And the worst?
2007 – buy Bradford & Bingley shares
What’s your poison?
What newspapers do you read, other than The Journal?
The Daily Telegraph
How much was your first pay packet and what was it for?
About 8 shillings for a paper round
How do you keep fit?
Ah ...that’s a difficult question
What’s your most irritating habit?
What’s your biggest extravagance?
Which historical or fictional character do you most identify with or admire?
Which four famous people would you most like to dine with?
I’m not sure I would want to do this at all
How would you like to be remembered?
With affection, by my children