David Prosser: Warm words for the mutuals, but actions would speak louder

The problem is that mutuals have so far had little success in persuading the powers-that-be to promote their business model


Outlook People generally feel relatively warm about mutually owned organisations – from the Co-op to John Lewis – especially in a post credit crunch world where the obsession with profit at all costs suddenly looks so crass. And as that sort of attitude has been most damaging in the world of financial services, it is hardly surprising that one aim of the new Government is to "foster diversity, promote mutuals and create a more competitive banking industry".

The problem is that mutuals themselves have so far had little success in persuading the powers-that-be to turn the theory of promoting their business model into practical policy. In appealing yesterday to regulators to "avoid the unintended consequences that may arise from a 'one size fits all' approach to regulation," Graham Beale, chief executive of Nationwide, Britain's biggest building society, was just the latest senior figure from the mutual sector to plead for a little understanding.

Nationwide's latest half-year results underline the problems facing all the mutuals in this market. In the current era of low interest rates and constrained funding markets, the margins for a business that effectively matches savers with borrowers are paper thin. Indeed, the society's profits – down by almost a half on the same period of last year – would have been lower still were it not for some extraordinary one-off gains.

No business likes shrinking profits, but for the mutuals, dwindling returns present a particular challenge just now. Like the rest of the financial services sector, building societies are under great pressure to improve their capital strength. Unlike banks and other plcs, however, they do not have recourse to the stock or bond markets for capital raising purposes. Capital reserves must mostly be bolstered from those dwindling profits.

Worse, the building society sector has an additional challenge. Not only do regulators want everyone to hold additional capital, they also want it to be of higher quality. For this reason, Nationwide and others will no longer be allowed to include permanent interest bearing shares (Pibs) when they calculate the value of their reserves.

Pibs are the closest building societies get to issuing share capital and might have been a valuable tool for mutuals trying to improve capital strength. However, unlike shares, where companies have the option of paying no dividend in more difficult times, Pibs carry a fixed coupon. For this reason, regulators have decided they should be regarded as core capital.

British mutuals, and many of their counterparts in Europe, are now in a frantic race to come up with some sort of hybrid instrument acceptable to regulators, before the Basel Committee on Banking Supervision publishes its new rules for capital requirements for the industry. Their efforts have so far been frustrated. If the Government really wants to "promote mutuals" it might start by going into bat on this issue for institutions such as Nationwide.

Life and Style
tech

Sales of the tablet are set to fall again, say analysts

News
A Brazilian wandering spider
news

World's most lethal spider found under a bunch of bananas

Life and Style
gaming

I Am Bread could actually be a challenging and nuanced title

News
Nigel Farage has backed DJ Mike Read's new Ukip song
i100
PROMOTED VIDEO
Life and Style
tech

Company decides to go for simply scary after criticising other sites for 'creepy and targeted' advertising

Sport
Mario Balotelli pictured in the win over QPR
footballInternet reacts to miss shocker for Liverpool striker
News
news

Footage shot by a passerby shows moment an ill man was carried out of his burning home

Voices
Sol Campbell near his home in Chelsea
voices
News
i100
News
Kimi the fox cub
newsBurberry under fire from animal rights group - and their star, Kimi
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

Day In a Page

Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

How We Met: Hugh Bonneville & Peter James

'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

Bill Granger's heavenly crab recipes

Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
Radamel Falcao: How faith and love drive the Colombian to glory

Radamel Falcao: How faith and love drive the Colombian to glory

After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

Terry Venables column

Premier League managers must not be allowed to dictate who plays and who does not play for England
The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

Michael Calvin's Inside Word

Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past