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MFG: In our head-to-head with Michael Coogan he confirmed that the impact of Europe on the operating environment in the UK had become the main policy issue on his personal agenda. This is as a result of both European Commission initiatives and market developments in the UK. Are these issues similarly dominating senior management time within lending institutions and are they likely to influence your strategicdecisionsl Wooo: Dominatingl No. But it is certainly up there with the other major subjects we have to deal with. That's not to say Basel II isn't a huge change. But it still has to fight for shelf space with issues such as the euro decision for the UK, interest rate volatility, and mortgage distribution. Our priorities are very straightforward: to stand out in a crowded market; to drive down costs; to deliver great customer service and to develop new markets such as Islamic-compliant home finance - a first for a high street bank in the UK. MFG: In its television and cinema advertising HSBC is portrayed as a global institution with local knowledge and expertise, but despite being a global player you don't operate on a pan-European level. Can we draw anv conclusions from thatl

Wooo: Yes I would. Housing markets are local in nature whilst funding is global. At over 3 trillion euros in value, the European mortgage market is certainly big to enough support an secactive ondary market. Potentially, this could driv changes in the sale of mortgages to retail customers. We are seeing clear investor demand for mofigage-backed securities from both European pension funds and insurance companies, as well as from abroad. With the right infrastructure, lenders and investors should be able to get in touch with each other. If that happens then I agree with Toni that we should see better liquidity, greater balance sheet efficiencies and lower costs. All for this would work of the benefit of the industrv and its customers. MFG: Fixed-rate mortgages have a much greater profile in the European market. Do you think that the Miles review will encouragethe UK to move towards the Europeanmodel, or will we continue to rely on short-term fixed ratesl

Wooo: A pan-Europeanmarket is something of a misnomer when it comes to mortgages. It's pretty unlikely, for instance, that someone Wooo: The "holy grai7" of longfrom Milan would want a mortgage term fixed rates is their potential to in Middlesborough. protect the hornebuying matket It makes nilore sense fot us to operate on a national level for sales from short-term interest changes. Research shows consumers are and servicing. Hence, we have receptive to the concept of longmortgage operations in the UK, Greece and France. In fact CCF, term fixed rates in principle, but not in practice. Their major objecour French subsidiary, has a morttions are the lack of flexibility gage book of over 3,694 million euros. But mortgage processing andlor the high cost of early repayhas to take place in a low-cost envi- ment. Without government support to overcome these major limitaronment, which is why we do this tions, I doubt there will be any sigon a global basis. nificant change to the UK model. On a wider European front the MFG: Toni Moss at EuroCatalyst possible evolution of a Freddie Mac seems to see Europe as a region of national housing markets but that / Fannie Mae implicit state-guaranthere is an opportunity to raise teed secondary mortgage market flexibility provide the mortgage funds more cost-effective- could consumers demand and the credit ly on a European scale through risk quality institutional investors global funding and TPA. Would you require. agreewith that perceptionl

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But a major development like that would take significant time and a therefore is medium-term prospect. I think the UK will continue to rely on short-term and fixed variable rates for the time being. MFG: What do you think is the important most European issue facing UK lendersl Wooo: Top of the list, it's essential that we don't let the EU directive on consumer credit undermine the new regulatory regime for mortgages being established in the UK. We believe this proposal has the potential to add significantly to industry costs, complicate sales processesand reduce product innovation. We need to keep the pressure on for substantial changes to this particular directive.

At present, firms simply dontt have substantial resources MFG: As chairman of the CML, available would you like to see individual to lobby lenders doing more on the lobbying to influence what is happenBrussels front ing on a pan-European level, and if on panso, have you any pointers on what European they should be doingl mortgage Wooo: In an ideal world, it might be possible. But at present, firms issues


simply don't have substantial resou(ces available to loblry Btussels on pan-European mortgage issues. With the boot on the other foot, I would like to see Brussels reaching out more to national markets. EU thinking and decision making should be more transparent and accessible. If lenders want their voice to be heard, there are plenty of opportunities to influence opinion-formers, in the media, Parliament or wherever. They can also support their neighbourhood trade associations with informed comment, or shared research. My final thought would be to get out there to events such as EuroCatalyst, to discuss and plan with other lenders. mFG



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