The Woolwich plc

Watling St.
Bexleyheath
Kent DA6 7RR
United Kingdom
(44) 181-298-5000
Fax: (44) 181-298-4783
Web site: http://www.woolwich.co.uk

Public Company
Incorporated: 1847 as The Woolwich Equitable Benefit Building and Investment Association
Employees: 6,000
Total Assets: £33.63 billion (1998)
Stock Exchanges: London
Ticker Symbol: WWH.L
NAIC: 52211 Commercial Banking; 551111 Offices of Bank Holding Companies; 522292 Mortgage Banking; 52222 Sales Financing

The Woolwich plc is one of the United Kingdom’s leading financial services providers, with over £30 billion in assets. A former building society, The Woolwich joined most of the United Kingdom’s other building societies in converting to bank status in 1997. Shedding its mutual status, The Woolwich went public on the London stock exchange and took a place on the country’s prestigious FTSE 100 index. The Woolwich remains largely centered on its mortgage and other lending products; despite seeing its market share slip back from 7.5 percent to around three percent, The Woolwich remains one of the United Kingdom’s largest mortgage providers. The company also offers traditional personal banking services, as well as domestic, automotive, and even pet insurance services. In the late 1990s, The Woolwich has been developing its investment services, including offshore investment facilities through its Woolwich Guernsey subsidiary. The Woolwich also operates lending subsidiaries in France and Italy. Despite its moves to diversify its product portfolio, The Woolwich has become the subject of takeover speculation in the rapidly consolidating U.K. financial services market.

Industrial Revolution Solution

The Woolwich was born out of the new economic and social realities of mid-19th-century England. The Industrial Revolution and the rise of the working class, which began swelling the country’s urban centers, had brought the need for new housing initiatives. The first building societies made their appearance in the late 18th century, as workers—chiefly artisans—grouped together to pool their resources in order to buy land and build their homes. Group members generally drew lots to determine who would have the next home built by the group. These societies were generally called “terminating societies,” given that, once the last member in the group had his home, the society was disbanded.

By the mid-19th century, the urban landscape had been dramatically transformed by a huge workforce of factory workers. The building society concept underwent its own development to reflect the changing workforce and their economic position. Where the terminating societies rarely had more than 20 or 30 members, the building society had many more, and functioned more as a lending organism than a direct home builder. Toward the middle of the century, the building society began to operate not only as a lender, but also as a savings facility, offering interest on members’ secured savings. These building societies were meant to stay.

One of the earliest of such “permanent” building societies was The Woolwich. In 1847 five local businessmen decided to pool resources and open a lending and savings facility in order to aid in the development of the community. The Woolwich Equitable Benefit Building and Investment Association was founded in August 1847 with the express purpose of providing lending for people seeking to buy or build homes and secure savings services for its members. The appeal of the building society, apart from its ability to provide mortgages to the largely underpaid industrial workforce, lay precisely in its cooperative nature, during a time that saw the first stirrings of the union movement and a growing demand for democracy.

The explosive growth of the industrial workforce provided fuel for the rapid expansion of the building society movement. By the end of the 19th century, the United Kingdom counted more than 1,700 societies. Many of these societies proved to be less than “permanent”; however, legislation provided in the Building Society Act of 1874 helped secure the importance of the building society, giving the movement a stronger basis with which to face the often drastic economic fluctuations of the era.

Leader in the 20th Century

The Woolwich prospered in the late 19th century; known by then as The Woolwich Equitable Building Society, the group was able to move to expanded headquarters, while remaining in the town of Woolwich. The society’s biggest growth came shortly into the 20th century. The end of World War I saw a new level of optimism for the victorious United Kingdom. A boom in housing and other development provided the basis for The Woolwich’s growth. In 1923, the building society decided to expand, opening its first branch office in London’s Cheapside.

The rapid growth in new building and housing developments in the late 1920s and early 1930s enabled The Woolwich to continue its own rapid expansion. By 1933, The Woolwich, with an assets portfolio of some £38 million, could claim to be the third largest building society in the United Kingdom. Reflecting the building society’s new prominence, The Woolwich opened a new headquarters building—Equitable House—on Woolwich’s General Gordon Square in 1935.

The building society would not have long to enjoy its new headquarters. With the declaration of war in 1939—and the beginning of the German bombings of London—the company moved to temporary headquarters in the Pilgrim House in Westerham, in the Kent countryside. With a large part of the British male population engaged in the military effort, The Woolwich, like most of its financial and industrial counterparts, began taking on female employees for the first time. Despite the war, The Woolwich continued to expand, opening its first branch office outside of England, in Edinburgh, Scotland, in 1941.

The end of the war brought a fresh wave of construction as the country recovered from the damage caused by the German bombs. Another force driving the growth of the housing market in general and The Woolwich in particular was a new trend in housing. The nation’s returning soldiers now sought to build and own their own homes, a development found elsewhere in much of the Western nations, encouraged in part by the shift of emphasis from the extended family to the nuclear family. The building boom inspired a fresh growth spurt in The Woolwich, which reached assets of £100 million in the mid-1950s.

By the 1960s, The Woolwich began to expand through most of England and much of the United Kingdom as well, opening branches on most of the country’s “high streets.” The Woolwich was also reinventing itself as a modern financial services provider, although still focused on its core mortgage lending product. At the end of the 1960s, the building society had put into place its first mainframe computer system, using an IBM 360/30, at a new administration center in Bexleyheath, Kent. The country’s great building wave was drawing to a close: by the start of the 1970s, more than half of all families in the United Kingdom had bought their own homes. Woolwich’s mortgage products had proved highly popular, enabling the company to establish itself on a fully national scale.

Conversion in the 1990s

The economic recession of the 1970s, brought on by the Arab Oil Crisis, would devastate the British economy, plunging the country into a long period of gloom. Consolidation of the still highly fragmented building society industry became the order of the day. By the mid-1990s, the number of societies had dwindled to just 80 survivors. Of these, The Woolwich remained in its top three position, behind Halifax and Nationwide.

Part of Woolwich’s success in surviving came from its early implementation of networking technologies, which linked all of the society’s branches to the Bexleyheath mainframe. The first in the industry to realize such a network, the society benefited not only from cost reductions, but also from a more modern image. Image provided another factor in The Woolwich’s growth: the launch of a mid-1970s advertising campaign contributed the highly popular phrase “I’m with The Woolwich.” More and more people in the United Kingdom were able to say just that.

In order to fuel its growth, The Woolwich became one of the first building societies to look for external financing. In 1983, the society went to the public market to raise capital, issuing certificates of deposits on the London Money Market. The influx of capital enabled the company to step up the industry’s consolidation, as it swallowed four smaller building societies. The society’s acquisition drive culminated in its merger with the Gateway Building Society in 1988, making The Woolwich one of the industry’s true heavyweights, with assets totaling some £13 billion. By then The Woolwich had also begun to diversify its operations beyond its traditional mortgage lending product.

Company Perspectives:

Our Business: The Woolwich aims to be the most effective provider of diversified personal financial services in the U.K. Offering a wide spectrum of solutions to customers’ lending, investing and protecting needs, it also possesses the vision and the determination to be the best.

The so-called Big Bang deregulation of the financial industry in 1986 set the stage for The Woolwich to enter into a new array of financial services markets. In 1989 The Woolwich launched its first subsidiary operation, Woolwich Independent Financial Advisory Services Limited, which, as its name implied, brought the building society into the financial planning market. The company also began developing a real estate arm, Woolwich Property Services, which grew to a national chain with nearly 170 branch locations by the late 1990s, including the 1991 takeover of the U.K. real estate operations of the Prudential Corporation. Meanwhile, in 1989, The Woolwich left its headquarters in the Equitable Building at Woolwich to establish new headquarters in its Bexleyheath locations.

From Bexleyheath, The Woolwich rolled out other subsidiaries as it diversified its product portfolio. In 1990 the company launched an offshore banking and investment vehicle, Woolwich Guernsey, which principally served the United Kingdom’s large expatriate community, and also opened Woolwich Life, a joint venture with the Royal & Sun Alliance Insurance Group to provide life insurance, mortgage endowments, critical illness coverage and savings bonds to the mortgage market; Woolwich held 90 percent of the joint venture, to Royal & Sun’s ten percent. Woolwich Unit Trust Managers Limited was launched in 1991, offering unit trust services to customers at Woolwich’s branch locations. By then, The Woolwich had already ventured overseas, starting up Banca Woolwich in Italy, principally as a mortgage loan distributor through third parties. In 1991 the building society bought out the 20-branch strong residential mortgage lender Banque Immobiliére de Credit from Midland Bank, renaming the operation Banque Woolwich SA.

Public Bank for the 21st Century

Despite calling itself Banca in Italy and Banque in France, The Woolwich was still a building society back home in the United Kingdom. Yet the society was rapidly heading towards its largest transformation yet. In the meantime, in the early 1990s, the society continued to expand, buying up the struggling Town and Country Building Society in 1992. That same year, the society changed its name to Woolwich Building Society, dropping the longheld “Equitable.”

Another piece of The Woolwich portfolio was added in 1993, when the surveying operations of Ekins The Woolwich and the separate Woolwich Property Services were combined to form Ekins—The Woolwich Surveying Services Limited, one of the largest specialist residential surveyors in the United Kingdom. The last piece of the diversified Woolwich portfolio was added in 1995, when the society formed The Woolwich Insurance Services Ltd. joint venture with Legal & General Group, offering personal insurance products including homeowners, automobile, and pet insurance policies underwritten by Legal & General.

Woolwich was clearly heading toward a change in its status. By the mid-1990s, growing numbers of the United Kingdom’s building societies were making the move to convert to full-fledged bank status. One of the earliest “converts” was Abbey National, which converted to a shareholder-held public status in 1989. Many of Woolwich’s major competitors, including Halifax and Alliance & Leicester were also said to be preparing a conversion.

Woolwich announced that it too would be converting from a mutually held building society to a publicly held banking corporation in January 1996, with its public offering on the London stock exchange slated for 1997. In preparation for the change, the society named a new chief executive officer, to replace the retiring former CEO Donald Kirkham. The job was to go to Peter Robinson, who had risen to the top of the society’s organization over a 23-year career, and who had been handpicked to take over the CEO spot by Kirkham himself. Yet within three months of his appointment, Robinson was forced to resign amid allegations that he had misused his executive position, including using society resources for his personal gain. Robinson was replaced by John Stewart as CEO.

The Woolwich conversion did not take place until 1997, with the delay as a possible result of its executive troubles. By the time The Woolwich finally went public, however, those problems seemed far behind, as the listing, worth some £3 billion, generated an enthusiastic welcome—and a total market capitalization of more than £5.5 billion. The Woolwich’s conversion from building society to bank placed it among the top ten British financial institutions, and granted the company instant FTSE 100 status as one of the United Kingdom’s blue-chip companies. It also created shareholders of the former building society’s 3.5 million members—who voted to abandon mutuality for free-market capitalism. By the end of 1997, however, the unsteady worldwide market—including the economic collapse of many of the Asian economies—had drained off some of The Woolwich’s share strength. At the same time, the company’s decision to open a number of customer service centers, effectively cutting out many of the third-party mortgage brokers through which The Woolwich had sold many of its mortgages, resulted in the company losing a large portion of its market share. By 1998, the company’s market share had slipped from 7.5 percent to just 3.1 percent.

The company’s share price nevertheless rebounded, aided by The Woolwich’s decision to shed its money-losing real estate division, selling the chain of estate agencies for £23 million. The company also managed to win back some of its market share by rolling out new products, including subprime loan packages and a new mortgage package, the Open Plan Borrowing, combining mortgages, personal loans, and customer savings in a single vehicle. The new package was a quick hit with Woolwich customers, accounting for 45 percent of the company’s new mortgages.

In 1999 The Woolwich further boosted its range with two joint ventures. The first was a partnership with home shopping retailer Littlewoods. Dubbed Littlewoods Financial Services, the venture began marketing home insurance, personal loans, and credit cards to Littlewoods’ 3.5-million-strong customer base in October 1999. Initial offerings were to be based on The Woolwich’s products and brand names; with plans to launch Littlewoods-branded financial packages by the end of the year 2000. A second joint venture was also set to debut at the end of 1999, as The Woolwich and U.S.-based Countrywide Credit Industries set up the Global Home Loans partnership for the U.K. market, beginning operations in September 1999.

The Woolwich had successfully expanded beyond its former mortgage lending core, while vowing to remain an independent operation. Yet industry analysts remained skeptical of the company’s long-term independent status, considering The Woolwich to be too small to compete with the industry giants and too large to take a comfortable position as a niche player. While The Woolwich insisted on its intention to remain independent—and was quietly buying back shares from its member shareholders—the company admitted that it would be interested in a possible acquisition to boost its size.

Principal Subsidiaries

Littlewoods Financial Services (50%); Woolwich Surveying Services Limited (Ekins Surveyors); Woolwich Independent Financial Advisory Services Limited; Woolwich Insurance Services Limited (90%); Woolwich Life Assurance Company Limited (90%); Woolwich Unit Trust Managers Limited; Global Home Loans (50%); Banca Woolwich SpA (Italy); Banque Woolwich SA (France).