FEAR OF FINANCE

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The Independent Online
The mists obscuring the future of the building society movement are slowly clearing and the Alliance & Leicester may well jump the queue to convert to banking status - ahead of the merged Halifax and Leeds societies, and the Woolwich which announced an independent float next month.

The Nationwide is now the only remaining building society big enough to convert into a bank and stand alone in competition with the big seven UK-based banks. Nationwide's management has been consistently critical of a move to banking status, for what that is worth, and is reported to be close to following the Bradford & Bingley by upping rates to savers and reducing rates to borrowers. That would have the effect of giving away profits and accumulated reserves, making the society less attractive to predators - and also less able to pay fat bribes to persuade members to vote for conversion in future.

But until and unless it is able not just to announce but also to implement that strategy fully Nationwide will remain vulnerable to a hostile bid, in the same way that Cheltenham & Gloucester had no defence against an unwanted bid from Lloyds Bank last year. Bradford & Bingley remains vulnerable until it has significantly run down its reserves and that will only happen slowly.

Even the Woolwich and the A&L could face hostile bids which could upset the applecart before they get to market. There may well be method in the madness of Peter White, the A&L's chief executive in refusing to reveal, for the time being at least, exactly what he is willing to offer to savers and borrowers to win their approval, in case he tells a potential predator exactly what terms he has to beat.

Bidders would presumably have to make members a more attractive offer than they are likely to get from their own management but it is not an impossible prospect.

Other smaller societies from the number five downwards are almost certainly too small to float as banks. But they may still need to merge to stay competitive at a time when mortgage lending remains sluggish and lending margins are being progressively squeezed.Some of them may also look attractive as takeover targets in the eyes of UK and foreign banks looking to buy mortgage market share.

The mortgage market may look depressed at present but it can hardly get much lower, in volume or in value. Building societies also have substantial captive markets for savers, which will not disappear overnight while the banks have such a poor image for personal service. Societies also have plenty of scope for rationalisation.

The most obvious speculative investments in building society membership may well have gone, and the entry threshold in many cases has risen well above the statutory minimum of pounds 100 for a saver. But the opportunities for such speculation have not disappeared completely.

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