Success not guaranteed for the Woolwich

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Success not guaranteed for the Woolwich

It is only possible to be coy about an open secret for so long; the Woolwich has clearly stretched that principle to the limit, continuing to play down reports of imminent de-mutualisation as premature right up to yesterday's final confirmation. But no doubt everyone is agreed and the only real reason for waiting until the New Year to announce the conversion to plc status was the presentational importance of having it done by the new chief executive, Peter Robinson, who will lead the society through flotation.

The decision is a significant one, but hardly these days a radical one. For the big societies, the question has become more one of whether there is a case for remaining mutual than the other way round. Already 50 per cent of the assets of the building society movement either have been or are in the process of being transferred to the banking sector. Some pounds 15bn worth of building society flotations takes place next year alone. Nationwide, which appears determined to stick it out as a big mutual for the time being at least, looks like being the exception. The Alliance and Leicester's conversion announcement is just weeks away, leaving just 30 per cent of total mortgage assets held mutually.

There are two main strands to the Woolwich's thinking. The first is that the pace of change in financial services requires a flexability that mutual status cannot deliver, particularly in capital raising and deal-making. The second is that the mutual ideal has in any case come under strain as a result of the society's diversification into insurance and unit trusts.

Taking the plc plunge looks is not of itself any guarantee of success, however. As Britain's fifth largest mortgage lender, the Woolwich has a strong core business and a good brand name. But this does not alter the fact that, capitalised at around pounds 2.5bn to pounds 3bn, it will look small in retail banking terms, possibly too small to remain viable in a fast changing and increasingly competitive world.

If the Woolwich manages to get to flotation without being gobbled up, it will need to use the five-year takeover-protection period under building society law to make some smartish acquisitions of its own. It might even feel the need for a pre-emptive strike as it prepares for flotation. A life mutual must be on the cards, but it will probably take another biggish building society like Britannia or Northern Rock to demonstrate that it really means business.