Kent Reliance dismantles defences against carpetbaggers

Five years after leading building societies believed they had finally seen off carpetbaggers, the sector could be facing a new threat from windfall-seeking investors. Kent Reliance, a medium-sized society based in Chatham, has dropped rules requiring speculators opening accounts with it to assign any future windfall rights to charity.

The society said it now welcomed applications for membership from carpetbaggers, though it warned windfalls would not necessarily be forthcoming. Savers will be able to open an account with just £1, though they will need to deposit at least £100 to be guaranteed a pay-out if the society demutualises in future, or is taken over.

Ivan Gould, the head of operations at Kent Reliance, said: "We don't feel the charitable assignment scheme is appropriate any more - it was put in place to stop the disruptive effect of carpetbaggers but we now have systems in place to cope with large numbers of applications for membership."

Windfall-seeking carpetbaggers, the scourge of the building society sector in the late nineties, have been in retreat since 2001, when Nationwide, the country's biggest society, defeated a second attempt to force it to demutualise and float on the London Stock Exchange.

Nationwide and almost all societies of any significant size subsequently introduced rules requiring new members to promise to donate any future demutualisation windalls to charity. The assignation schemes deterred thousands of carpetbaggers who had been hoping to net windfalls worth thousands of pounds, similar to those paid when Halifax, Woolwich and others floated on the stock market in the mid-1990s.

This year, however, a spate of deals in the sleepy building society sector have rekindled interest in windfalls. In January, Leeds Building Society announced it was taking over Mercantile Building Society. It was followed in March by Portman Building Society, which has agreed to take over Lambeth Building Society. Portman has also had an offer for Cheshire Building Society rejected.

Such deals often result in windfalls for members. In the case of the Lambeth deal, for example, members will receive cash windfalls worth between £400 and £2,500 if they back Portman's takeover proposals.

Kent Reliance members might expect similar pay-outs if it is bought by a rival. It is currently Britain's 19th largest building society with total of assets of about £1.3bn, marginally larger than Lambeth, the 21st biggest society, with assets of £1.1bn.

However, Mr Gould warned that savers and borrowers joining the society in expectation of a deal could be disappointed. "We're not seeking a merger or a takeover, or to be taken over," he said. "We're not big enough to compete on price all of the time and this is another way to attract retail funds."

Rachel Blackmore, of the Building Societies Association, said other societies were unlikely to follow Kent Reliance's lead, though she said more takeovers and mergers were inevitable.

"More than 50 building societies have these charitable assignment schemes because they are a useful weapon in the battle against those misguided souls who believe in campaigning for demutualisation," Ms Blackmore said.

"Given the extremely competitive nature of the cash savings and mortgage market in which building societies operate, we do expect to see further consolidation in the sector, but it's very difficult to say who, what, when or where."