Until recently the decline was solely due to societies merging with one another - usually large ones coming to the rescue of small, under-capitalised rivals. Abbey National broke the mould, converting itself from a mutual into a bank in 1989. But when no one else followed, that started to look like a one-off.
The C&G's move changes the picture. If the most efficient society by virtually any measure says it will be better off as a bank, what hope is there for lesser societies?
The conventional wisdom goes like this: with a banking licence, C&G will have greater access to the capital markets; it will be able to diversify into new product areas; it will be able to exploit scale economies by taking on the Lloyds mortgage book. I'm not terribly convinced by any of these arguments. Yes, the Lloyds purchase will almost certainly encourage similar takeovers. But the fuel driving this deal is not commercial logic, it's gravy - pounds 1.8bn buys a lot of converts.
The C&G's 1.2 million savers and borrowers stand to collect windfalls of pounds 500 to pounds 10,000; they won't need a lot more convincing. The executives of the C&G know only too well that rewards in banking are higher than in the sleepy building society industry. Meanwhile, the merchant bankers, lawyers and accountants - destined to pick up pounds 30m or so in fees - can hardly believe their luck. Lloyds has also got a bargain: Brian Pitman, its canny chief executive, has captured C&G without having to stump up the cash for another 12 months. There are no obvious losers, though the generations of Cotswolders who helped build up the reserves of the society over a century or more may be turning in their graves.
The takeover terms have made plain the great open secrets of the building society industry. These are that societies are enormously valuable; that you, I and every other small saver own them; and that value can be turned into hard cash.
But it won't be a smooth ride for Lloyds. There will be cries of injustice. If the Abbey's experience is anything to go by, there will be cries of injustice because of the arbitrary rules of the cash bonanza. The Abbey's road to flotation was marred by a wail of disappointment from children, trustees, divorced couples with joint accounts and others disadvantaged in the free shares payout. And Lloyds is only too shamefacedly familiar with the conclusion to the Abbey float story: its registrar's department was responsible for the shambolic dispatch of Abbey share certificates - a fiasco that ended in the burning of tens of thousands of certificates.
There are more serious hurdles, too, starting with the High Court case next month to establish the legality of the takeover. The Building Societies Commission, the industry regulator, is capable of making life very difficult. Then there is the matter of getting hundreds of thousands of savers to vote. Lurking in the wings is the alarming, if remote, possibility of a counter-bidder. Plenty of others, from BAT to TSB to National Australia Bank, would like to get their hands on a building society.
It all smacks of selling the family silver. But then mutuals have lost much of their shine anyway; most forgot a long time ago that their customers were their owners. Curiously, they've evolved into the least accountable of business organisations. The Nationwide's disgraceful treatment of savers three years ago, when it deliberately stranded them in obsolete accounts, typified a management that had forgotten whom it was meant to be serving.
It is notoriously difficult for an ordinary saver or borrower to get elected to the board of building societies; their labyrinthine rules and procedures make sure of that. And those who actually make it have a tendency to go native.
Abbey, the bank, has shown it can treat its customers as well as Abbey, the building society. There seems no reason why a society's savers and borrowers - its legal owners - shouldn't be able to crystallise the value of that ownership. But the whole process could do with a lot less cant. Let's just call a gravy train a gravy train.Reuse content