Page 3: PLCs
The 1980s and 1990s have been a period of profound change in the financial services market. To understand Abbey National’s decision to convert to a plc it is important to understand the major forces for change. These were:
- The deregulation of financial markets. Before the 1980s it would have been unthinkable for Abbey National to straddle as many key areas of the financial services market as it does today. Until then, different financial activities such as banking, mortgage lending, savings and insurance were performed by distinctly different kinds of organisation - banks, building societies and insurance companies. That changed in the 1980s, as regulations which limited competition were abolished in a process known as deregulation. Building societies were still confined by law to a narrow range of business which involved lending mortgages to home buyers and growing depositors’ savings. The 1986 Building Societies Act changed this by allowing building societies - whose activities were very limited - to convert to plc status so that they could take advantage of the industry’s deregulation.
- The need for wider access to funding. If Abbey National was going to expand and develop for the future, it needed wider access to funding. Most of the mortgage lending that building societies do is financed by the money deposited by savers. Another useful source of funding is the wholesale money markets, which can sometimes lend money at a lower rate of interest than banks and building societies charge their borrowers. However, the amount of money building societies can raise on the wholesale markets is restricted – going public would give Abbey National wider access to these funds.
In addition, conversion would raise valuable share capital from the sale of Abbey National shares, which could be used to finance investment in the business.