Mutuals find their friends have gone

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The Independent Online

It started in the 18th century as a well-meaning way of helping people to save for their future. But now mutuality looks so sickly that one wonders when a vet will be called to put it out of its misery.

It started in the 18th century as a well-meaning way of helping people to save for their future. But now mutuality looks so sickly that one wonders when a vet will be called to put it out of its misery.

The collapse of Equitable Life could prove to be the fatal wound. The 238-year-old life insurer was forced to closed its doors to new business in December after failing to find a buyer to plug the black hole in its accounts - estimated to be as much as £5bn. This emerged after the July ruling in the House of Lords that Equitable's treatment of 90,000 customers with guaranteed annuity rates was unfair.

Equitable built its reputation on mutuality: policyholders benefited from having profits returned to them, instead of the insurer building up reserves for a rainy day. All very admirable, with the company paying some of the highest bonuses in past years. But it has also been Equitable's undoing. Mutuals need reserves as there are no shareholders to call on in times of need. And with the biggest mutual collapsing so quickly, what chance do others have?

Back in June, the situation looked more hopeful. Standard Life managed to cling on to its mutual status even though it looked odds-on to become a plc. Despite the efforts of the carpetbagger Fred Woollard, less than half of the policyholders who voted were in favour of demutualisation. It seems to have been only a brief respite, however. The board was shown to be arrogant and unaccountable. Its reluctance to tell policyholders ahead of the de- mutualisation vote that their endowments might fall short of what was forecast, damaged the insurer's reputation further.

Gordon Hart, who led the successful campaign to get Scottish Provident to demutualise, is hoping to force a new vote at Standard Life next year. One suspects he'll find it easier to drum up support now.

With Scottish Provident sold to Abbey National and Scottish Life to Royal London this year, consolidation and the subsequent demise of mutuality continues. Friends Provident is planning a flotation in June.

It is not just mutual insurers which have been targeted. Building societies continue to be the focus for windfall hunters. But be warned: carpetbaggers' promises don't always come true. Bradford & Bingley members who voted for demutualisation last July were expecting windfalls of £1,000 but ended up with little more than £600.

Next year is going to be tough for the societies. Nation- wide fended off a pro-conversion resolution in July 1998 but the UK's biggest building society is likely to face a vote next summer. In November 1997 it introduced a rule that all those joining must sign away their windfall rights to charity. Other societies have followed suit. Yet Stephen Major, the plumber from Northern Ireland whose campaign turned B&B into a plc, is confident of getting the backing he needs to stand on a pro-windfall ticket for the Nationwide board.

Chelsea Building Society is also at risk. A chartered secretary from Middlesex, Andy Naughton-Doe, says he is close to the required support for a conversion vote here. Luckily for Chelsea, Mr Naughton-Doe doesn't seem organised enough to get the backing he needs.

Chelsea and Nationwide should survive as mutuals into 2002, but it is only a matter of time. The trouble is that the world in which building societies thrived has changed. Since Abbey National became a bank in 1989, 10 societies have converted. The remaining 60-odd mutuals are trying to demonstrate their benefits by offering lower mortgage rates or preferential savings accounts to existing members.

One of their strengths has been their strong regional presence. But how important is that to a generation increasingly accustomed to using the internet? Birmingham Midshires, taken over by the Halifax in 1999, announced this year that it was closing 47 branches. Yorkshire Building Society has suggested that mutuals share their branches. So far, only Britannia has agreed.

Skipton Building Society tried to distract members from pushing for demutualisation by making £500 windfall payments. The Portman resisted pressure for a similar payment, as well as rejecting calls for a conversion resolution on a legal technicality. But such tactics are unlikely to keep the carpetbaggers at bay for long.

The mutuals can't win: those fighting back look increasingly desperate as they try to stop members voting. Even Bob Goodall, co-ordinator of Save Our Building Societies, could yield. He is £10,000 in debt and predicts that the fight is likely to become more financially onerous next year. Sadly, he may as well give up now.

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