Abbey National Building Society

Abbey National Building Society

A 'Building Society' is in other words a Financial Institution that is owned by all its members rather than by its shareholders. The Building Society plays the role of paying interests on the deposits made by the members, and also of lending money to its members by proposing to keep the property as security in order to enable them to buy a house of their own. When compared to a Bank, the Building Society offers a lesser range of financial services, but at a lower cost than the Bank. (Finance: Glossary B) However, the Building Society is owned by the members who borrow and deposit money in it, whereas the Bank is not owned as such by any particular group of members. (A UK Mortgages Website) The innate benefit of the members is more important than any other function of the Building Society, and it is regulated and controlled by the Building Societies Act, and the Building Societies Commission also lays down strict rules that the Society is expected to follow. (Mortgage: Dictionary B)

The Abbey National Building Society was formed in the year 1944, after the merger that was achieved between the Abbey Road Building Society and the National Building Society. Before this, the Abbey National Plc had been founded in the year 1849, at which point of time it was known as the National Freehold Land and Building Society. (Guide to Mortgage Lenders) It was in the month of July 1989, that the Abbey National Building Society became a plc again and it floated its shares on the London Stock Exchange, at the rate of 1.30 pounds per share. The primary reason behind the Abbey National Building Society converting into a plc is because, even after the Building Societies Act was passed in order to regulate the conditions of all Building Societies in general, the various services that the building societies would be able to offer its customers was being severely restricted, and this made it difficult for these building societies to even think of expansion and growth. They found that they could not raise sufficient funds for this purpose.

The market conditions at the time were very strict and regulated, and there was stiff competition everywhere. The 1986 occurrence of the 'Big Bang' served to break down all the traditional barriers that a person would expect in a Bank, and soon banks and other financial institutions became more capable of offering a wide range of financial services that hitherto had not been done. Abbey Building Society had at this time already demonstrated its free and independent thinking by breaking away from the Cartel of building societies that had insisted on certain fixed basic mortgage rates for everyone. Therefore when the decision to convert into a plc was taken in 1989, and after the conversion had actually taken place, there was a dramatic increase in the number of shareholders in the United Kingdom: the numbers rose from 6 million to 9.5 million, a 50% increase. (Conversion to plc, the Background)

Free shares were granted to those qualified borrowers and savers within the society as was seen fit, and most of them received about 100 free shares valued at 130 p each, and qualified persons who were both borrowers and savers received 200 of the same shares each. All customers were asked to vote by a private ballot whether or not to go ahead with the conversion, and this was the largest ever-private ballot that had ever been conducted until that time, and it was the general opinion of the customers that the Organization would be transformed into the fifth largest Bank in the UK. The Company actually managed to achieve an amount of 975 million pounds worth of capital and a total market capitalization of 1.7 billion pounds. The share prices of the Company began to rise, and by the end of the first year after the conversion, the price had gone up to 181 p each, with most of the shares still in the hands of private individuals. By April of the year 1999, the value of the shares had risen to 1435 p each, and this was an all-time high until then. Also, the Abbey Building Society had made a pre-tax profit of 501 million pounds in the year 1989, and by the year 1990, just one year after the conversion, the profits had risen to 582 million pounds. (Conversion to plc, the Background)

With the conversion came quite a few advantages for Abbey, and these were, primarily, that now that there was more money available, it could build up its business better and faster, and since there were fewer restrictions on its activities, having become a Bank, it could in fact expand more quickly through acquisitions as well as through natural means. Abbey has therefore succeeded in expanding and diversifying and also in the creation and the development of a vast range of new services like offering life and general insurance, medical insurance, pension schemes, endowment schemes and also Unit Trust funding. Some of the Company's profits also come from areas like life assurance, consumer credits, financial markets, and several offshore operations. (Conversion to plc, the Background)

In the year 1996, the Abbey National merged with the National and Provincial Building Society, and by this one action, managed to increase its network by making another 200 branches, and thereby gaining another three million loyal customers. In June 1990, the Abbey Charitable Trust had been created for the purpose of serving as the liaison of the Company with several voluntary organizations that included charities and community projects on its agenda. In the year 1992, Abbey had purchased the life-company 'Scottish Mutual' for 288 million pounds, and changed it into 'Scottish Mutual Assurance plc'. Soon, in the year 1993, Abbey was able to launch its own life company, the Abbey National Life, plc', which marketed the company's products to the public through its network of branches. (About Abbey: 1989 to 1999)

The 'First National Finance Corporation', one of the largest finance companies in the UK for offering 'point-of-sale' loans, had been bought by Abbey for the sum of 285 million pounds. In 1996, there was yet another acquisition, and this was the 'Wagon Finance Group', one of UK's largest used car finance companies, for 108 million pounds, after which 'Elton holdings', a car leasing financier, was acquired for the sum of 12 million pounds. In the year 1996 there was another merger and this time it was with the National and Provincial Building Society', after which the total mortgage market share of the Abbey Building Society increased to 15% from 12%. (About Abbey: 1989 to 1999)

By the beginning of the year 2003, Abbey Building Society had become 'Abbey', and made known its inherent interest in literally 'turning banking on its head' by bringing about numerous changes in the very idea of how a bank must be run. In 2004, Banco Santander made it known that it wanted a merger with Abbey, and Abbey consented to this move. The merger, after the approval of the courts, was accomplished in the month of November 2004, and thenceforth Abbey became a part of the 'Grupo Santander Group' of Companies. (History)

The phenomenon of increasing consolidations in the banking sectors has in fact led to the increase in the sizes of the Banks, because of the more concentrated system that has come into existence today. The balance has become even more delicate, and the concerned authorities are finding it increasingly difficult to manage. Mergers and acquisitions have been on the rise in the banking sector from the early 1990's, during which there were a record number of mergers in Banks all over Europe and the U.S.A. This has led to the several different changes in the infrastructure of the market wherein 'niche' players have a major role to play in the conditions reigning over the market. Generally, those mergers that ensured efficiency gains were allowed to consolidate, and these became the major players in the banking sector. Bank services are generally looked upon as just another product, whose efficiency can be calculated as being equal to the sum of the producer and the consumer surplus. Therefore efficiency is more important, even if the gains achieved from such efficiency may not be of immediate benefit to the customer. (Consolidation in the Swedish Banking Sector: A Central Bank Perspective)

It can be stated that it is a fact that all Building Societies and Banks have in fact been developing a so-called 'multi-channel strategy' in order to stay ahead of their competitors in the fiercely competitive deregulated market conditions of today, and this is exactly what Abbey Building Society has been doing, so that it can always stay one step ahead of its various competitors in the field. Abbey has in fact been utilizing its various branches and all its Internet Centers and also its Call- centers and even Interactive Television in order to broaden its horizons and to maintain it's hitherto steady and continued growth. (Welcome)

What is the corporate strategy that Abbey has been following these past years, and how effective and appropriate is this strategy? Has the corporate strategy been successful as far as the growth of the company is concerned? After the takeover in 2004 by the Banco Santander Central Hispano by which the Abbey Building Society merged with the Santander Group, and the 155-year-old financial institution became a victim to its European Rival in the same field, the bank's shares were de-listed. All of Abbey's 1.8 million shareholders had to swap one of their shares of Abbey for that of the Spanish Bank, and in December 2004, they will receive 31 p in cash for each of their Abbey shares if they wish to sell them. (Delisted Abbey Pays Price for Risky Strategy)

Though the Spanish Bank has indeed stated that it will still keep intact Abbey's branches and will improve its dealings with all its customers, Abbey has in fact lost out its position as one of the foremost financial institutions of the country only because of the high-risk strategies that had been adapted by the management at the time, which included high-risk bond investments, and an unnecessarily expensive expansion into the life insurance business. Mark Thomas, the banking analyst at Keefe, Bruyette and Woods, reflected that it was on account of the management that "tried to make it exciting but failed" that Abbey had to merge with its rival in order to survive. (Delisted Abbey Pays Price for Risky Strategy)

Abbey, in its efforts to improve performances and develop more and more creative strategies engaged the group called 'Saba' in July 2004. Saba is a provider of Human Capital Development and Management Solutions, also known as HCDM Solutions, in order to help the management team at Abbey to improve with efficiency the various goals and ideals of the company with that of all the several different individuals throughout the company so that it would be able to keep track of and follow the advancement and the continued growth of the company at all times. Chris Wagg, the PD Project Leader at Abbey, stated that Saba would be capable of delivering such information as was needed in order to manage the performance of the entire team within the organization in a manner that would allow flexibility and independence in its efforts in following and tracking the performance of the employees of the organization, by establishing clear cut goals, and by being able to deliver automated performance assessments of the employees to the management that was tracking it. (Saba: Press Release)

This method, newly introduced by Saba, would be capable of not only saving valuable resources, but also by improving dramatically the consistency of the findings. Abbey was able to adopt Saba's proposed HCDM Solutions to the workings of its own company because of its comprehension of the complicated relationship between the concepts of 'enterprise learning' and 'organizational performances'. By using the HCDM solutions, Abbey pledged to improve employee performances dramatically, and to increase the output and efficiency of its employees, and to strengthen the arrangement of the organization in such a manner that it would only result in the saving of costs to the company. Since history reveals that some of the most successful companies have in fact been aware of improving employee performances in such a way that there would be tremendous benefit for the company by the simple methodology of building up and fortifying the management systems of the company, it is no falsehood to state that Abbey, by adapting these simple management solutions, managed to improve the performance of the company in no small measure. (Saba: Press Release)

Another of the strategies adapted by Abbey Building Society was that of the 'Converged IT Telephony System' from Cisco Systems and from BT. It is a fact that Abbey focuses primarily on the system of 'personal customers' and therefore it needed to develop a radical and thorough system of dealing with the rapid and fast changes in the company. It was one of the important decisions made by the company that the latest technologies that existed would become a part and parcel of the main corporate strategies that the company would adopt to deal with these changes. As Bill gibbons, the Director of Technology Services and Support put it, the rapid changes in the financial industry were resulting in the need for quick and sure reactions to these changes, and if possible, to be leaders in facing these changes head-on. These changes also brought various different opportunities, he stated, and these would have to be grabbed as soon as they knocked at the door, otherwise, the opportunity as such would be missed.

It was for all these reasons that Cisco and BT were engaged so that they would be able to provide the power and the strength and command to deal with the changes in an effective manner that would offer flexibility as well as control over all the central issues, not only in the present, but also in the future. The functions and duties of Cisco systems and BT were to develop a new converged corporate infrastructure that would essentially serve to bring together into one single converged network all of the system's multitude of different and disparate voice as well as data networks. The reason why there was so much disparity in the infrastructure of the company was because of its growth strategy over the years by which means it headed the immense responsibility of the acquisitions of more and more businesses into the folds of the organization. (Voice of the Future)

Quite naturally, the network infrastructure became largely incongruent and disparate and therefore difficult to control. It also resulted in there being a very limited scope for amalgamation across the entire organization. Technological integration alone would not be sufficient enough to deal with the problem; since all the different networks were guided by several different service contracts, also known as SLA's or Service Level Agreements, and maintenance contracts with entirely different management interfaces. It is essential to understand that when there are differences of such types at every level, it will be difficult for the company to have a totally integrated corporate infrastructure, especially because of the very practical problems of limited time as well as limited resources. Obsolescence was taking place in the technology all across Abbey, and this needed to be changed, quickly.

Technology is of extreme importance to all organizations today, especially in the banking sector, where speed and efficiency are paramount in its day-to-day dealings with its customers and with other companies. Not only does the access to important and vital data become speedier, but the customers of the bank will also be able to avail of more personalized service, and, most importantly, the costs would be limited and contained when things are faster. Abbey, when researching these issues, decreed that the existing infrastructure would not be able to withstand the onslaught of these new technologies into its framework in a manner that would allow it to still maintain stability, since the coverage for these technologies would be vast. Bill Gibbons and Gary Wass undertook the task of analyzing and researching the way, in which the communication networks of the organization were being based on, and how they were being managed and developed across the entire framework of the company that had 746 branches, and 66 head offices within its working organization. (Voice of the Future)