Acquisition is the way for Woolwich

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Woolwich Building Society's belief that flotation is a strategy sufficient in itself to take the company into the next century has never been entirely credible. The fact that the society has been putting itself about quite vigorously in recent months among a handful of life mutuals suggests that it doesn't buy its own story either.

Retail financial services is already an overcrowded sector. From all directions, building societies, insurers and clearing banks are elbowing each other to get onto the same patch of lucrative turf, where financial conglomerates will take deposits, sell mortgages, pensions and insurance, and look after long-term savings and investment requirements across the board. A number of building societies have such pretensions. In the crush, however, only a few will succeed.

Of the pretenders, Woolwich's prospects look among the shakier. Halifax, which is also converting to bank status next year, benefits from being the biggest and arguably the best of the old mutuals. Alliance & Leicester, although on the small side, has the advantage of already being significantly more diversified than most societies, with about 40 per cent of its profits coming from non-mortgage-related business.

Woolwich has no such obvious advantages. It is a successful, large building society, but will make a vulnerable, middle-sized bank. Shaken by the controversial sacking of Peter Robinson, its chief executive, a few weeks ago, Woolwich is probably getting more than a few calls from interested acquirers. There are enough about, the Scottish and Irish banks, the Pru and BAT among them. The best defence against such predatory attention is to break out quickly from this uncomfortable middle ground by acquiring something itself. But the problem with the life mutuals is that they are flavour of the month. A host of big players, such as the Pru, Sun Alliance, Abbey National and NatWest, are furiously jockeying to buy, and several deals are said to be bubbling just below the surface. Whether Woolwich still has the wherewithall to buy before being bought is anyone's guess.