What is the point of building societies? I am prompted to ask this heretical question by the record profits which Barclays announced this week, as the opening shot in what is expected to be a bumper 2003 banking results season with combined profits of £30bn.
By contrast, the building societies' influence is dwindling. Every year a few more are taken over, and we are now down to 63 societies with total assets of £200bn, about half the size of Royal Bank of Scotland alone. So it is hard to argue that building societies can do much to curb banks' carnivorous instincts towards their customers. About as much, in fact, as a flea trying to stop a galloping herd ofelephants.
Building societies cloak themselves in a garb of finest mutuality, claiming moral superiority over the banks, whose first loyalty is to their shareholders rather than their customers. Building societies, whose leaders like to think of themselves as a movement, have no such conflict of interest.
They do indeed offer the public a choice. But it is difficult to tell how many building society customers buy into the mutuality argument, or even the pleasure of supporting a local David against the financial Goliaths.
Some customers will undoubtedly go out of their way to do so. But for many, a nearby building society branch is simply a convenient means of money transmission, or a home for savings. And if you think you will need a mortgage it is not a bad idea to put a few pounds behind the counter of your local society, to show willing. If the moral argument doesn't wash, the more active societies will push the practical benefits of mutuality in narrowing the margin between savings and lending interest rates, so their customers should pay less to borrow and earn more on their money. However, this confuses the differing roles of owner and customer.
Part of that better deal is really the rent or dividend investors expect as a return on their capital. It may not be much, because in most cases the risk of owning a building society is fairly low, as is the value added. But it is there. And the chance of a demutualisation windfall is normally in for nothing.
Building societies are relatively simple businesses to run, but they can provide decently cushioned homes for some moderately fat cats. A handful of societies behave like public companies, giving their members the opportunity to vote on directors' pay, but others do not, mutual or no. That is all very shabby.
But the wider question is whether building society staff are being deployed to the best advantage of the community. As with customers, some of the staff are dedicated to the mutual cause and would rather fry their eyeballs than work for a bank. But most, I guess, are less fussy and could be employed more economically by banks.
Closing the remaining building societies would put 63 head offices up for sale. Luxury mansions on the edge of provincial towns are good for prestige, but the multiple duplication of function is a huge waste.
The building society movement has fought an admirable rearguard action. It will linger on, but it is steadily becoming an expensive anachronism.
THOSE WHO should know are saying "animal spirits" are again at large in the financial undergrowth. I haven't seen any myself, but then maybe I haven't been frequenting the right bars in the City lately.
The evidence for these animal spirits is the sudden spate of transatlantic mega-bids, or at least rumours of them. Vodafone may be about to splash £20bn on AT&T Wireless, or it could be £50bn on another US mobile business, Verizon. Barclays has Providian Financial of America on its shopping list at £2bn, while Royal Bank of Scotland and HSBC are jostling one another for the right to buy the US-based GreenPoint Financial for £6bn.
The good news for investors is that the re-emergence of bid fever opens up a moneymaking area that has lain moribund since the onset of the bear market four years ago.
The game of spotting takeover targets can be among the most lucrative for those who can consistently make the right guesses.
So far, the potential acquisitions are on the US side of the Atlantic. But it can only be a matter of time before investment banks persuade clients to pursue UK bids.
The key is to avoid sectors that are already down to a few players, such as banking, unless a foreign predator turns up. Watch for companies with lower ratings than the rest of the market. And good luck.