Fair wind for Woolwich

BLUECHIIP
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The Independent Online
One final huzzah then for building society conversions, as the Woolwich Building Society becomes the last of the scheduled giant societies to float on the stock market, and so bid farewell to its mutual status.

Societies to have floated their shares this year - Alliance & Leicester, and the Halifax - have shown that there is enormous appetite from investors for these stocks. Part of this has been driven by a general rerating of the banking sector as a whole. Money is pouring out of them and even where an individual bank encounters the odd problem, there is the prospect of a juicy takeover or merger to assuage investor dissatisfaction.

There is little to distinguish Woolwich, the fifth largest mortgage lender in the country, from its peers who have already gone down this route. Both the Halifax and A&L are conservative, well-managed concerns, with the appeal of significant market share and good credit control at a time when demand for mortgages is on the rise.

The last grey market price for shares in Woolwich was 320p, a rich valuation for the business, and capitalising it at over pounds 5bn. It will propel the company straight towards the FT-SE 100, thereby generating instant demand from index-tracking funds especially, but most other big institutional investors.

It also makes the shares more expensive than most other banks, including Barclays and HSBC Holdings, and also just ahead of Lloyds TSB Group, the wunderkind of the sector. The shares would trade almost in line with those of the Halifax, themselves seen by many to be overvalued.

But alongside the Halifax, Woolwich is a small operation - its earned gross operating income last year was pounds 796m, against the Halifax's pounds 2.7bn - making it a more likely takeover target for a bank with deep pockets. At present, the business is still almost wholly reliant on the housing market. As well as its 394 branches, it runs a network of 167 estate agents. Like most building societies, Woolwich comes to market with a surfeit of capital, and there is every prospect it could resort to share buybacks, or above average dividend payouts. Acquisitions would also be easier for it.

RICHARD PHILLIPS

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