Wary societies plan bonuses

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The Independent Online

Financial Correspondent

Building societies are planning to pay customers loyalty bonuses to pre- empt hostile takeover bids from banks following Abbey National's successful pounds 1.35bn offer for National & Provincial, announced yesterday.

While now described as a friendly merger, Abbey's initial approach was the first hostile move against any building society. Its success is being viewed as a signal that it is open season.

These "long-term member benefit schemes" are seen by the remaining building societies as the only way of persuading customers to reject windfall cash payouts such as the pounds 500 promised by Abbey.

One society plans to pay customers pounds 1,000 each if they keep an account open for five years. Most are feverishly planning similar schemes, according to City sources.

Woolwich, Nationwide and Alliance & Leicester are all seen as prime bid targets after the Abbey victory. Lloyds, which failed to win Abbey, and HSBC subsidiary Midland are the most feared as predators by the societies, according to industry sources.

TSB and Royal Bank of Scotland are also keen to buy, but analysts warned they may have missed the boat and are themselves potential bid targets. Others circling, such as National Bank of Australia and BAT Industries, have been given a big fillip by the success of Abbey's approach.

Ramming home the attractions of bank takeovers to society customers, N&P said yesterday that up to 15,000 people who opened accounts during four days of intense speculation about a possible merger stand to share in a pounds 1.35 bn cash windfall.

The planned takeover of N&P by Abbey confirmed yesterday will create Britain's second-biggest mortgage lender with a 15.2 per cent share of the market. If the merger goes ahead, about 1.3 million N&P members with a savings account or mortgage balance of pounds 100 or more on 28 April this year will gain Abbey shares worth at least pounds 500.

That includes the 10,000- 15,000 savers who opened accounts in the four days between Abbey announcing its interest in a merger and N&P halting new accounts, Alastair Lyons, N&P chief executive, said yesterday.

Employees and pensioners of N&P will receive the same amount, but there will be no special deal for directors, who will not be able to take part in Abbey National's share option scheme until two years after the merger.

Savers of two years' standing will get more - depending on the size of their accounts - and can claim their windfall in cash. People who are both savers and borrowers will receive benefits in both capacities.

The merger is subject to the approval of the Building Societies Commission and N&P members, who will be balloted next year. The N&P board is unanimously recommending approval and hopes the merger will be completed within a year.

Lord Tugendhat, chairman of Abbey National, revealed his company's initial offer of pounds 1.2bn for N&P was raised to pounds 1.35bn over weeks of negotiation. Acquiring N&P was the "last major piece in the jigsaw" of Abbey National's development since becoming a plc five years ago.

Both sides insist there will be no compulsory redundancies in the branch network, though 120 branches will close.

But they admitted that some jobs may go elsewhere. At least 1,400 jobs will be preserved at N&P's Bradford head office, Mr Lyons said. Compulsory redundancies elsewhere will be "minimal".

Peter Birch, Abbey chief executive, said that the combined group recruited about 1,000 people a year, which would be put on hold. Staff turnover was about 10 per cent; this, together with early retirements, would help to cut numbers.

Mr Lyons will become head of insurance on Abbey's board. He said that N&P would be "fully subsumed into Abbey". Although the name would go he hoped N&P's bee logo would continue in some form.

Justifying the deal, Mr Birch said Abbey was currently able to set the prices it wanted for mortgages, but if it didn't keep up with size of the new Halifax/Leeds combination, which has a fifth of the UK mortgage market, Abbey would become a price follower. The deal would lift Abbey's mortgage share from 12 to over 15 per cent.

John Wriglesworth, a director of Bradford & Bingley, commented: "This isn't a hostile bid which Abbey has won. N&P never defended itself. N&P behaved like a death-wish kamikaze pilot. The rest of the building society industry will defend itself."

The pounds 1.35bn price represents 1.84 times N&P's historic book value.

Comment, page 17

Targets to watch

Targets Price (pounds m) on

same basis as N&P

Nationwide 3527

Woolwich 2670

Alliance & Leicester 2219

Bradford & Bingley 1352

Britannia 929

Northern Rock 802

Yorkshire 675

Bristol & West 598