Welcome to the new Independent website. We hope you enjoy it and we value your feedback. Please contact us here.


Nationwide fires the first shot in fight to stay mutual

NATIONWIDE, the world's biggest building society, yesterday fired the opening shots in a renewed campaign to stay mutual as it announced unprecedented success in attracting savers and borrowers.

Pointing to a 55 per cent boost in its share of the mortgage market, executives said they would be handing pounds 300m back to members in better saving and borrowing rates, pounds 100m more than last year.

The society claimed it "could not lose" in the price war for savings and mortgages as it hiked its savings rates by 0.35 per cent, 10 basis points more than the rise in base rates last Thursday.

A dramatic influx of savers gave Nationwide an exceptional 20 per cent of the market in the year to April, boosting its savings balances from pounds 27bn to pounds 33bn and contributing to a bumper rise in profits of 40.6 per cent. Assets grew by 16.4 per cent to pounds 47.1bn.

The society faces a vote next month on a proposal to take steps towards converting the society to a bank. Nearly 8million customers will receive voting forms over the next week.

Two members in favour of conversion, Michael Hardern and Andrew Muir, are standing for election to the board. Brian Davis, the chief executive, said the results were possible because Nationwide could undercut rivals who paid dividends to shareholders. The society now offers a variable rate mortgage at 8.1 per cent - against 8.7 per cent for most converted societies.

"One has to ask why our competitors in the market have been getting up and giving lectures as to why we should convert. At the end of the day it will be very much to their advantage if we do convert.

"The markets will see our results today and they will see what a strong competitor we are and I don't think that can be anything but bad news for them. There is no way we can lose a pricing war."

Nationwide said the average member with a pounds 50,000 mortgage would gain pounds 250 a year if its rates were half a percentage point below other lenders. Members in favour of conversion have proposed a windfall worth pounds 500 per member.

If the July vote is in favour of staying mutual, the society will be protected by regulations from holding another conversion vote for the next three years.

The robust set of results rebounded on converted societies yesterday. Halifax saw its share price sink by more than 3 per cent to 861p, valuing the average windfall of 330 shares at pounds 2841. Alliance & Leicester slipped to 825p from 833p.

Abbey National shares dipped by 3 per cent to 1,079p but recovered after it announced a hike in interest rates of 0.25 percentage points. Mortgages between pounds 60,000 and pounds 100,000 will now cost 8.9 per cent.

Other banks are likely to copy the rate rise over the next two weeks. Mutual building societies, which resisted the last rate rise as part of their battle for market share, are set to raise rates. But they are adamant they can keep rates lower than banks.

Converted societies have been hit hard recently by volatility in their share prices. Halifax shares rose from 502p when it floated last July to 1,000p at the end of 1997 before settling back to their current price.

Mr Davis also attacked rivals savings groups such as Tesco and Northern Rock for seeking to attract new savers with higher rates than they pay to existing customers. He called for such practices - known as "portfolio management" - to be banned.

Outlook, page 19