Jim Willens, Newcastle Building Society

Aug 9 2010 by Peter McCusker, The Journal

IT’S been a tricky few years for the Newcastle Building Society. It was rocked by the fallout from the global financial crisis, which led to the collapse of the two Icelandic banks in which the Newcastle had invested £43.5m.

This led the region’s biggest mutual to post a loss of £26m in 2008. But the Newcastle also did back office work for the UK division of Landsbanki, and its collapse led to it cutting 100 jobs on Tyneside.

Then, late last month, it posted a £4.9m loss for the first six months of 2010, dragged down by the cost of a restructure, which included shutting four branches and making 126 redundancies.

Over the last few years, it has shed around 400 jobs and there is nervousness in the mutual about the £500m of commercial lending it is still carrying on its books.

And it has recently appointed its third finance director in a little over a year.

So when chief executive Jim Willens took the helm this year, one might have expected a little fear and trepidation. But, after more than 30 years working at mutuals, he is not only stoic but excited and optimistic about the situation.

"Building societies offer something different to the other financial institutions and it is important for consumers that there is that choice in the market place," he says calmly.

"Mutuals exist to optimise profits for the long-term future of its members and employees.

"This is a wholly different dynamic to plcs, where the board’s job is to look after the interest of its shareholders.

"And, despite the upheavals in the financial markets over the last few years, there is a distinct place in the market place for mutuals to exist alongside banks."

Dunbar-born Willens, who left the chief executive role at the Dunfermline Building Society to take up his current post, has identified a clear way forward for the Newcastle.

This involves sticking to the script and avoiding any of the distractions that many financial firms, including the Newcastle, were tempted by in the Noughties boom years.

"We are very much a traditional building society. There are areas of activity we should be involved in," he stresses.

"It’s pretty straightforward. Mortgages, savings, investments and good-quality insurance where appropriate."

Willens witnessed at first hand the temptations dangled in the way of institutions like the Newcastle in those far off days before the credit crunch.

"It became a very competitive market place. It was difficult to find a way where there was a return on normal building society activities, so diversification was seen as the way forward.

"That was the case with all building societies to some extent, and it has since become apparent that many did not understand the risk.

"Around the time of the financial crisis, the level of these risks became apparent and some organisations disappeared."

Two areas of concern for Willens at the Newcastle, which are a hangover from the pre-credit crunch days, are the £500m of commercial lending the Newcastle still has on its books.

There is also £850m of housing association lending, which has only a nominal risk, but is lent on a long-term basis, and Willens said this is money it would much rather have available to lend to home buyers.

"We have almost £1bn tied up in these two areas and it is money we would much rather be lending into the housing market," he explains.

The region’s other major financial institution, The Northern Rock, was the first major UK casualty of the credit crunch.