There's still room for the mutuals

After recent bouts of carpetbagging, building societies have come out fighting, tougher and ready to argue their case.

The members of Bradford & Bingley, the UK's second largest building society, decided this week time was up on its 149 years of mutual ownership and voted to convert it to a plc, gathering windfalls of about £730.

The members of Bradford & Bingley, the UK's second largest building society, decided this week time was up on its 149 years of mutual ownership and voted to convert it to a plc, gathering windfalls of about £730.

Immediately after Monday's vote, Stephen Major, the plumber from Northern Ireland who triggered the process, pledged to lay siege to the Nationwide. If he succeeds, it will mean Britain's largest building society, with £64m of assets, will go the same way as eight other societies in the past six years.

The Bradford & Bingley vote was not a surprise. Most industry observers expected it. But the size of the margin was overwhelming. Some 1.6 million members voted, the society's highest ever turnout. If this is any measure of the tide of opinion, it seems the mutuals' days are numbered. After all, eight of the largest 10 have converted and, as our article on page one shows, there are plenty of other, if smaller, targets.

However, the struggle may not be over. Standard Life, Europe's largest mutual life insurer proved last month that carpetbaggers can be taken on and subdued.

The remaining building societies, 67 in total, may be much smaller in size but are battle-hardened from the recent bout of carpetbagging. They have come out fighting their corner with some improved tactics, not least the argument to members that you should resist the temptation of jam today for the promise of long-term confectionery.

First in line is the Yorkshire building society, which will become the third largest in Britain when Bradford & Bingley floats on the stock market in December. This week, the Yorkshire hired a wagon and parked it outside rival Bradford & Bingley's special general meeting in Sheffield.

Emblazoned on the side was the offer to Bradford & Bingley members to take out a "mutual mortgage" with Yorkshire. It guaranteed a rate of one per cent below Bradford & Bingley's for the next two years, while allowing them to retain £1,000 at Bradford & Bingley and so qualify for windfalls.

It was only a publicity stunt, but it illustrated a point that all pro-building society groups are highlighting. They say that the simple fact is that savers and borrowers receive more favourable rates with mutuals because no money has to be found to reward shareholders.

David Homes, of Yorkshire, said: "Our base rate and Bradford & Bingley's was the same - 6.6 per cent - last year. Now ours is 7.29 while theirs is 7.64 and they have said they may make more changes to their savings and borrowing rates."

If Bradford & Bingley borrowers take up the mutual mortgage they could save £1,400, according to Yorkshire. The Building Society Association (BSA) points out that the products of mutuals appear much more often in best-buy tables than their plc counterparts. A survey in What Mortgage magazine showed that the cheapest mortgage lenders over 25 years were all mutuals. On the savings side, 17 of the 20 best performing TESSA accounts for the five years until 2000 were building societies.

People in the conversion camp counter that, while mutuals have the edge in what they can return to members, plcs give people the opportunity to own shares. Christopher Rodrigues, chief executive of Bradford & Bingley, said: "The change in our mortgage rate is offset by the shares and dividends people will receive. Hopefully the shares will go up in value."

But just how much shares may go up by is in doubt. Members will be disappointed with the windfalls they will get, likely to be between £647 and £815, based on the last comprehensive valuation of the business by Goldman Sachs at the end of last year. These are small compared to the £2,400 windfall Halifax members got when the company - at the time the largest building society - converted three years ago. They are also disappointing compared to the £2,000 Mr Major told members they were in lie for when he set carpetbagging resolutions in motion.

There could be worse news to come. The £730 figure is based on a valuation of the business of £1.75bn to £2.2bn. Some analysts, however, say it may raise only £1.3bn in the stock market. Pro-mutual campaigners say that as well as seeing windfalls plummet, the disappearance of building societies will let the traditionally high-charging clearing banks do what they like. David Homes of Yorkshire said: "We play a key competitive role. If mutuals did not exist, I dread to think what the base rate of most banks would be now."

Mr Homes warned that while Yorkshire was able to offer Bradford & Bingley members an attractive alternative to mortgage hikes, the offer would not always necessarily be there. He said: "There is still enough capacity for building societies to absorb any business from people who want to transfer from a recently converted company. But if more and more societies convert, that will not be possible."