A suitable case for conversion?

Nationwide's future: Rival candidates argue the pros and cons of floating the building society
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The Independent Online
Nationwide windfalls in June! If members vote in five Members for Conversion directors when voting papers are sent out next month, free shares won't be far behind.

If you don't vote, don't whinge if you have to wait for over 200 years for the same value from mutuality.

There is no mystery as to why 97 per cent majorities have voted FOR building society conversions when asked. Especially when what was billed as pounds 1,000- worth of free shares turns out to be nearer pounds 2,000.

The argument is put that Nationwide doesn't have to pay its shareholders dividends, so if today's members don't have a windfall, the Nationwide can subsidise tomorrow's members.

The reality is that 80 per cent of savers have less than pounds 5,000 invested and 50 per cent have under pounds 1,000. Eighty per cent of mortgages are under pounds 50,000 and 50 per cent under pounds 10,000.

A PLC makes pounds 1 profit per pounds 100 assets and pays half out in dividend. This translates to a benefit of 0.25 per cent if split between savers and borrowers - a mutual dividend of pounds 2.50 on every pounds 1,000 saved or borrowed. For 70 per cent of savers, the maximum mutual dividend is pounds 5 a year. Seventy per cent of borrowers get less than pounds 50 annual benefit. These figures are being generous to the other side.

Seven out of 10 savers would have to live at least 200 years to get pounds 1,000 from mutuality.

Surprise, surprise, most want a pot of jam today rather than a thin scraping for the next 10 generations.

Let me put that another way: you can have pounds 1,000 free shares or you can subsidise some complete stranger's mortgage or savings. The likelihood is that this stranger will be wealthier than you are.

The "moral" argument against conversion is that you have enjoyed the benefit of free capital built up over 150 years and have a duty to pass it on the next generation. Except that history is littered with cases where squatters' rights have ended in ownership. Besides, two thirds of this "free capital" has been built up over the last 10 years.

Another argument is that public interest means building societies' competitive advantage stops banks from overcharging.

Again, why should Nationwide members lose out on their windfall to help the world? Besides, overcharge and a bank will go out of business.

"Members for Conversion are not qualified to run the Nationwide." Says who? We pay the chief executive around pounds 500,000 a year to run the society. If the board represented ordinary members instead of professional managers, they would have had the decency to put the decision on conversion where it belongs - with the owners.

Members will decide if Members for Conversion are more in tune with their wishes than the existing board.

Finally, what should you do with your windfalls? Invest in building society memberships. Nationwide, Bradford & Bingley at pounds 500, Portman and Coventry at pounds 100.

For a free Carpetbaggers Guide to Windfalls send an A5 SAE to MFC, 3 Rathbone Street London WlP IAE. Check out the website: http://www.web- centre.co.uk/mfc

Michael Hardern, on behalf of Members for Conversion

At Nationwide we believe that continuing as a building society is the best way to put customers' long-term interests first. As the world's number one building society, we provide a real alternative to banks. This means we can ensure genuine competition and choice on the nation's high streets.

As a building society we do not need to maximise profits in order to pay dividends to shareholders. Instead, we deliver higher savings rates and lower mortgages than our main high street competitors. Over the last year alone, a family with a pounds 60,000 interest-only mortgage and pounds 5,000 in an instant access account would have been more than pounds 200 better off with Nationwide than with the big converting societies and banks. We can continue doing this year after year.

Don't just accept our word for it. A recent report has shown people really are better off with true building societies like Nationwide. We have also been named Best National Lender by What Mortgage magazine. In May, Nationwide products have had over 100 mentions in national press "best buy" tables.

For people who don't have a mortgage or significant savings balances just at the moment the prospect of a one-off windfall may at first sight seem attractive. But customers and their families have a lifetime of financial needs and these needs change and grow. At different stages of our lives almost everybody has a mortgage, which can last up to 25 years, and our savings will need to see us through to old age. From this perspective the building society advantage really makes a difference.

A future without building societies would have banks as the only mainstream choice on the high street. At the moment they are forced to keep their rates under control and provide more competitive prices. We believe that, without the very strong national competition we provide, banks would pay worse savings and mortgage rates to increase their profitability.

Again, don't just take our word for it. Ten years ago Nationwide was the first big financial organisation to launch a current account that paid interest. We were followed by other leading building societies, and eventually, by the main banks. Consumers throughout the country have benefited as a result of our initiative.

Mr Hardern and his colleagues are contesting our election with the sole aim of turning Nationwide into a bank to generate a windfall. The motivation appears to be a personal gain with no long or even medium-term interest in the Society or its future customers.

A building society needs to be run by people with financial and management experience. I hope our customers will seriously think about the abilities and experience required to direct an organisation with assets of pounds 40bn and to look after the long-term interests of 7 million customers when they vote.

The Nationwide board has looked carefully at the options. We have ignored short-term personal benefits, such as share options, and have taken the decision that Nationwide should remain a building society. By doing so we can continue to focus all our efforts exclusively on customers year after year.

Phillip Williamson, marketing and commercial director, Nationwide Building Society

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