Outlook: Halifax tries gimmicks to claw back loyalty

THERE'S one figure that sticks out like a sore thumb from the generally flattering list of key statistics paraded by the Halifax yesterday with its first set of full year results as a plc. The former building society's share of net new mortgage lending slumped last year from 11 to just 6 per cent. Halifax's share of the total UK mortgage market, built up over the generations under mutual ownership, is somewhere in the high teens.

Plainly if this poor showing with net new mortgage lending continues for much longer, Halifax's overall position in the market will begin seriously to erode. What's happening here? Now that the Halifax is a bank, is the public beginning to treat it like one - by shunning it in favour of what remains of the mutual tradition?

For the moment, investors seem to be unperturbed. A sharp fall in net new mortgage lending was common to all the newly converted building societies last year and it was caused largely by the process of conversion itself. Since mortgage borrowers were entitled to free shares in the converting building societies along with depositors, a backlog of mortgage redemptions built up as members sought to hold on long enough to benefit from the conversion.

That backlog broke like a dam the moment conversion took place, and by the Halifax's own calculation more than two years of normal redemptions and remortgages flow went through the books in the months immediately after the stock market float. If you look at gross new lending, ignoring redemptions, Halifax says, then market shares are not much altered.

But is this the whole story and where has the business gone to? The main beneficiaries certainly appear to have been the remaining mutuals. In part this is also explained by the conversion phenomenon. It obviously makes sense to take out a new mortgage with a mutual when there is some prospect of it one day converting. With the Halifax and other converted societies, the windfall has already been and gone. But it is also to do with the fact that the mutuals are on the whole now offering more competitive rates than the converted societies, both to savers and mortgage borrowers.

The Halifax is determined to claw back this loss of market share with a whole new raft of marketing gimmicks, cash back offers and the like. Other converted societies talk about getting the balance right between profitability and volume; they are prepared to cede volume if the result is enhanced profitability. But whichever way you cut it, the mutuals seem to be offering a better deal than the converts. Halifax also has to contend with new, low cost entrants to the market. The only constraint on the growth of the mutuals and the new entrants seems to be in their administrative capacity to deal with the influx of new business.

Even so, there is every possibility that the market share of the converted building societies will continue to erode sharply, albeit at not quite the same alarming pace as last year. It is not clear that a company that has matured in its core business to this extent warrants the heady, growth stock rating of 22 times earnings placed on the Halifax and its like. But then for the time being we are still in the longest running bull market of all time.

THERE HAS been much talk over the last week about how the "architecture of the global financial system" might be reformed to reduce the risks of violent mishap such as the sudden plunge of the Far East into economic crisis. Alan Greenspan, chairman of the US Federal Reserve, started the ball rolling on Friday by saying "the architecture of the international financial system will need to be be thoroughly reviewed and altered as necessary to fit the needs of the new global environment".

Not to be outdone, the US Treasury Secretary, Robert Rubin, immediately claimed an extensive effort was already under way to overhaul this architecture. Then in weighed Eisuke Sakakibara, a semi official Japanese Government spokesman on matters financial to say that many world leaders would be starting to contemplate something along the lines of the Bretton Woods agreement. What's that? Bretton Woods? Whoa there boy! We're beginning to get a bit out of hand here.

There is a world of a difference between Mr Greenspan's measured calls for greater transparency, more effective counterparty surveillance, government regulation, supervision and the like, and the reinstatement of a fixed exchange rate system such as that of Bretton Woods. Nothing could be more out of place today than another Bretton Woods; it would run wholly counter to the highly effective and disciplined way in which the modern and now global capitalist system exposes and punishes underlying economic weaknesses.

So why is Mr Sakakibara, often known in the West as "Mr Yen" because of the effect of his comments on foreign exchange markets, proposing it? It is because Mr Salakibara and many others in the Far East still refuse to see their economic crisis for what it is, the result of bad and corrupt government which attempted - disastrously as we have seen - to manipulate the capital markets to their own ends. Everyone wants to find a way of limiting the extremes of behaviour in the capital markets. But Bretton Woods is not the way.

"Electricity giant cuts pounds 12 off household bills" makes a nice headline for an industry that is still hardly flavour of the month either with the Government or the consumer.

But the reality behind yesterday's announcement that National Power has decided to pass through pounds 230m of cost savings to domestic customers, is somewhat different.

The price cuts NatPower proudly announced are already in the pipeline. They make up part of the pounds 24 reduction in the average bill that the electricity regulator Professor Stephen Littlechild forced through last October.

What NatPower's announcement really demonstrates is just what a topsy- turvy world it has become when the price of coal supplied to its power stations can tumble by more than 20 per cent and yet the net effect can be to wipe pounds 130m off its bottom line.

Scarce surprise that its share price got a nasty shock along with PowerGen's. Eastern, the third biggest player in the fossil-fuel generating market, would also have felt the heat were its shares not so fired up by the bid battle currently being waged by a pair of US utilities.

The fact is that the demise of the cosy "back to back" deals whereby the generators bought over-priced British coal and then simply passed the costs onto the consumer via the regional electricity companies spells trouble not just for RJB Mining.

The big three suddenly find themselves squeezed between a government determined to do something to help the coal industry and a bunch of customers who are finally waking up to the fact that as their markets open to competition, they will have to buy supplies more competitively too.

The net result is that profit margins in the electricity business are likely to migrate away from the generators and towards the supply end of the business. It will not be a big migration but it will be enough to explain why PowerGen's Ed Wallis is so keen to buy a Rec.

None of this, of course, will deter Texas or PacifiCorp from paying a ruinous price for Energy Group. But if the only people who get burned are shareholders in Dallas and Portland, then who's worrying?