Knight refuses to ease takeover rule for societies turned banks

Angela Knight, the Treasury minister, insisted yesterday that she would not back down on her plans to make building societies that become banks lose their protection against takeovers, if they make a bid of their own.

Mrs Knight was speaking ahead of a meeting of Alliance & Leicester members in London's Docklands tomorrow to approve the conversion and flotation next year.

The society has been the most vociferous critic of the proposal to make the five-year protection against bids conditional on not mounting takeovers for other financial institutions.

With Alliance, Woolwich and Northern Rock all complaining that their flotations are threatened by her new building societies legislation, she said "we are talking about building societies as big as the Royal Bank of Scotland and larger than Guardian Royal Exchange".

Mrs Knight added that it would be "so discriminatory to allow these huge financial institutions to make hostile bids against others without those other institutions being able to protect themselves. They would be unable to do a counter-bid because of the protection."

She said she was not prepared to make changes in the core proposal of removing the five-year protection from any converted society that made a bid for another financial institution.

She believed there was an extensive range of activities societies could undertake without losing their protection, including the purchase of mortgage books and mortgage brokers and joint ventures with other companies, for example in the insurance industry.

She also denied a weekend report that her draft Building Societies Bill would be softened, to allow agreed mergers with other building societies to take place without loss of protection.

Mrs Knight's refusal to include even agreed mergers with other building societies in the draft Bill is likely to disappoint Woolwich, which has been pressing her to say that protection can be maintained in these cases.

Mrs Knight said the problem with the proposal was that it had never been possible to define an agreed takeover in law.

Woolwich is thought to be less likely than Alliance & Leicester to mount large-scale takeovers after conversion, and it flatly denied yesterday it had been in talks with Royal Bank of Scotland, after a merger approach from the bank. A spokesman said preparations for the flotation were going ahead.

Mrs Knight also said she was seeking a way to allow a converted society to drop the takeover protection "if it really wanted to" while setting the threshold for voting at a level that would stop the society being "bounced" by a relatively small number of shareholders.

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