A former bank of England economist has called for new laws to prevent the UK's few remaining building societies from being converted to banks.
Rob Thomas, now a building society analyst for UBS, said the UK's “treasured” mutually-owned building societies should be saved by laws to stop members enriching themselves on conversion to bank status.
The Halifax, Woolwich, Alliance & Leicester and Northern Rock building societies have all announced the intention to float, converting their ordinary depositors to shareholders. The Bristol & West will become a subsidiary of the Bank of Ireland.
Thomas said building societies gave their depositors higher rates of interest than banks because “they do not have external shareholders demanding a fat dividend”. And in a further threat to mutuality, Norwich Union last week announced its intention to float.
For current depositors, he said, getting free shares on conversion “seems like great news, but is far from positive for future savers and borrowers”. They would miss out on free shares and the better rates of interest, he said. If all building societies converted, borrowers and savers would lose a choice previously taken for granted.
Writing in the annual report of accountancy firm Robson Rhodes, he says asking members to vote on conversion is “rather like asking 20 people walking their dogs on Wimbledon Common one morning if they would like to carve it up between them. They are bound to vote yes.”
A law to stop members receiving payment on conversions existed in Denmark, he said. But he told The Lawyer: “It's unlikely the Government will listen. The Conservatives like to encourage people to be shareholders and even the Labour Party is unlikely to want to change things. It knows the ordinary man in the street is driven by what he can get today, not in the long term.”