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Clare Francis: There has been a huge amount of activity in the savings market in recent weeks, obviously we have has the collapse of the Icelandic banks, we have seen government bailouts, consolidation in the market.
Over the next few weeks we're going to be talking to some of the UK's leading savings providers about what the implications of recent events are going to be.
This week I'm with Reza Attar-Zadeh, who is the Head of savings at Abbey. Abbey is owned by the Spanish bank Santander which has recently brought Alliance & Leicester and the savings book of Bradford and Bingley.
So Reza we have seen a lot of activity in the savings market recently, one of the things that seems to be happening because of the financial crisis is savers seem to be seeking a safer home for their money and Abbey has been one of the main beneficiaries of this - you've seen a 70% increase in the amount of money you have got on deposits.
Why is Abbey perceived to be safer then many others of the UK's savings providers?
RA: I think it stems from the fact that we are backed by one of the largest banks in the world by market capitalisation, in terms of profit, in terms of the fact that we have one of the strongest credit ratings in the market place. We have also benefitted from having positive press about the Santander group and consequently I think people have seen Abbey as a safe haven to bring their money to, and we are also offering very good rates on our products as well. So, it's a win win for the customer
Q2: Before the onset of the credit crunch, I think the Spanish banks where often perceived as being quite old fashioned, they worked in quite traditional ways of using the money they had got on deposits to find lending, but that's proven to be a real saving grace in the financial crisis and they haven't suffered in the same way that other institutions have with rising levels of bad debt, presumably that's another reason why Abbey and Santander is seen as safer?
RA: I think very much so, I would define them as more traditional bankers, they have kept to the more traditional ways of banking, lending mortgages prudently, good risk criteria, commercial savings rates that have allowed the company to grow profitability in a sustainable manor, so they have avoided a lot of the toxic stuff that's in the market place and that consequently has put them in good stead in what is going to be quite a tough time going forward.
Q3: Here in the UK it's not just Abbey that is part of the Santander group, it's recently bought Alliance & Leicester and Bradford & Bingley's savings book, but the two acquisitions are quite different aren't they, could you just explain, if we go back to the issue of security and protecting your savings, why they differ because the level of protection savers get varies doesn't it depending on who you have got an account with?
RA: Yes, basically with Alliance & Leicester we actually acquired the company, we brought the shares and as a consequence got the banking licence with Alliance & Leicester so they have a separate banking licence and therefore the financial services compensation scheme covers them independently of Abbey.
Bradford & Bingley on the other hand, we actually bought the assets within the company, so we brought the savings book and the branches and as a consequence the banking licence went with the company to the government so we didn't get the banking licence there. So, what that means is a customer that has money with Abbey and Alliance & Leicester are covered [for] £50,000 in Abbey, £50,000 in Alliance & Leicester, whereas a Bradford & Bingley and Abbey combination will be covered up to £50,000 in total, but as I said before it hasn't been too much of a concern for customers: in the case of Abbey because it's backed by the Santander group and because we are one of the biggest banks by market capitalisation and highly profitable.
Q4: Both acquisitions are quite recent but what are the plans going forward. As you've said Alliance & Leicester is a separate business. Is the plan to keep it separate or merge it into one bigger brand and because Bradford & Bingley's savings accounts are managed by Abbey do you think they are likely to be merged under the Abbey brand?
RA: No decisions have been made in respect of that, I think the thing that we'll be looking to do is, as a challenger in the market place against the larger banks, we want to maintain that challenger status, we want to take market share and ensure customers get a great deal, and we will look for the optimum way of achieving that
Q5: You were talking just then about wanting to be a challenger and price aggressively, but we've seen a lot of consolidation in the savings market recently, obviously Santander brought Alliance & Leicester and Bradford & Bingley. We've got the planned merger between HBOS and Lloyds TSB, some of the building societies, Nationwide taking over Derbyshire and Cheshire, Yorkshire building society and Barnsley, Scarborough and Skipton and then obviously ING Direct, which rescued Kaupthing Edge and Heritable Bank.
A lot of analysts are saying that this consolidation will be bad news for the consumer going forward because ultimately there will be less competition in the market there is fewer providers fighting for market share so its likely to see a reduction in savings rates. Do you think that is going to happen?
RA: I think the competition will remain intense. I think it may not be to the levels we saw over the past few years; there were over 60 savings providers in the market place. I think you will see, yes, as we are seeing some consolidation but it's still being intensely competitive and from an Abbey perspective and a Santander perspective we are keen to grow are market share, be a challenger in the market place and we will continue to compete very aggressively against the larger banks.
Q6: The other big issue at the moment, I suppose, is falling interest rates, as the Bank of England and the government battles to fight off recession, further rate cuts are expected on the back of the ones we have already seen, which is obviously bad news for savers, because savings rate are likely to come down further. What is the incentive to save at the moment if it's going to become harder to find a rate that beats inflation?
RA: It's a balancing act and it's quite a difficult balancing act, what we need to keep the economy growing strongly is people spending money. The other aspect is to reduce debt levels, so with rates reducing, customers who do have debts will be encouraged to pay off their debts and also to continue spending, and yes that does have implications for savings potentially. However, savings have historically always been very resilient in terms of its growth in balances. In the good times, we saw savings balance growth; in bad times we'll see savings balance growth. Yes, the savers will probably not enjoy the same heady heights of rates they have seen in the past few years, however, if they are looking for better returns there are alternatives: there's considerations of the investments market, for instance or investing in structured products, for instance which are capital guaranteed, offers a minimum with some upside potential as well. So, there are other ways other than just saving to generate inflation-beating returns if you want it.
Clare Francis: Thanks Reza
Reza Attar-Zadeh: Thank you
