You can bank on reaping the rewards of conversion

No Pain, No Gain: Our Man's Portfolio

AS MEMBERS of two more building societies are urged by their directors not to force them to face the rigours of a stock market quotation, it is, perhaps, worth looking at the rewards of those who have voted for conversion.

So far, five building societies have become mortgage banks quoted on the stock market. Alliance & Leicester, Halifax, Northern Rock and Woolwich abandoned mutuality in favour of becoming public companies with shareholders instead of members in the past couple of years. Abbey National is the granddaddy of the converters - electing to become a stock market company in 1989.

Many investors cashed in when the shares were floated. Those who held on have not fared too badly in share price terms and have reaped the rewards of increasing dividends plus special payments.

Abbey gave its members 100 free shares and sold them others at 130p a time. So a price of 1,278p with a 1,358p peak is not a bad reward for ten years' dedication to the former building society.

Alliance arrived at around 550p, has been as high as 964p and, at the time of writing, resides at 855p. Halifax started near 730p, went to 977p and is now 775.5p. Northern Rock has moved from 460p to hit 668.5p and is now 511p. Woolwich's journey has been from near 300p to just above 400p. The shares are now resting at 387.5p.

Abbey's performance supports my advice that an investor will not come to much harm by giving a sound blue chip a long run. After all, that is the philosophy of most fund managers.

The others which opted for demutualisation have, quite clearly, not been around long enough to make any contribution to the long-term argument for blue chips. Still they have, in varying degrees, provided those prepared to run the risks of the share market with useful gains. The Halifax reorganisation has come in for some ill-considered criticism. With its coffers overflowing, it is handing out 62p a share, reducing the number of shares in issue by killing off three out of every 40 and paying a 13.5p dividend. It has also indulged in a pounds 1bn share buy- back which has yet, however, to provide much in the way of tangible benefits to private shareholders.

The five mortgage banks will also feature in the consolidation of the financial industry. Many are convinced it will not be long before a big deal materialises.

At times the speculation has been intense - although a mega deal is still awaited. Rumours have already linked Abbey and Halifax with National Westminster Bank and/ or Barclays and Lloyds TSB is piling up cash and will need to make a predatory strike shortly. The merger fever which has broken out among continental banks will merely add flame to the smouldering fires of corporate activity.

Of course, cash rewards are only part of the conversion argument. Certainly shareholders fare better than members when it comes to totting up the loot.

Building societies promise many benefits from mutuality, such as cheaper mortgages and higher interest rates. I find it surprising that these alleged rewards seem to have, in the main, materialised after the conversion bandwagon started to roll.

Those of us who obtained mortgages in the near mutual monopoly which existed in the 30 years before Abbey converted certainly saw little evidence of the "members first" attitude which is now, it seems, the theme which dominates a society's trading.

At present, two societies are under attack from the converters. Bradford & Bingley, where 70 members are urging the switch, and Britannia, where the controversial and ubiquitous former butler Michael Hardern has popped up.

Britannia, probably because it is facing what it regards as the confinable challenge of the eccentric, arch carpet-bagger Hardern, has adopted a relatively measured, unruffled but one-sided approach in its circular to members. Still, Britannia has at least allowed Hardern to stand for election as a director - others refused.

Bradford & Bingley has got itself into quite a tizzy and the presentation of some of its literature against the conversion proposal is astonishing.

Its voting form is remorselessly geared to encouraging a "No" vote and members are offered the following loaded resolution:

"Bradford & Bingley should remain a mutual building society working in the best interests of its members both now and in the future."

It is surprising that such a partisan voting form is permitted in these politically correct days when any hint of bias is jumped upon.

I would, however, be surprised if either society converts. But quite clearly the pressure is mounting on the mutuals which seem to be adopting some odd tactics in their struggle to avoid the dreaded plc status.