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.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
News
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
PROMOTED VIDEO
News
Billie Whitelaw was best known for her close collaboration with playwright Samuel Beckett, here performing in a Beckett Trilogy at The Riverside Studios, Hammersmith
people'Omen' star was best known for stage work with Samuel Beckett
Arts and Entertainment
Mark Wright has won The Apprentice 2014
tvThe Apprentice 2014 final
News
i100
Arts and Entertainment
Darrell Banks’s ‘Open The Door To Your Heart’
music
News
Detective Tam Bui works for the Toronto Police force
news
Arts and Entertainment
X Factor winner Ben Haenow has scored his first Christmas number one
music
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'