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Paper money: From demutualisation to nationalisation
THE imminent nationalisation of Bradford & Bingley will mark the end of the line for the last independent former building society to take on bank status.
B&B joined the rush to demutualise in July 2000 - a full 14 years after Margaret Thatcher's 1986 Building Society Act, which allowed the societies to become banks if its members agreed.
Demutualisation appealed because it allowed the building societies access to a wider range of funding than simply customer deposits, allowing them to compete more strongly with banks.
Conversion to bank status also came with payouts of cash and free shares to former members - spawning a new breed of investors known as "carpet-baggers" who opened accounts with a host of societies in the hope of gaining demutualisation windfalls.
But this year has been a torrid time for those former building societies which took the plunge as the credit crunch hits home.
Northern Rock - which demutualised in 1997 - was forced into public ownership in February after the freeze in global money markets shattered its business model.
The company had moved away from customer deposits to fuel its aggressive growth. But it became over-reliant on money markets, which seized up last year amid concerns over toxic debts in the global banking system in the wake of the US housing slump.
Alliance & Leicester's problems were less acute than Northern Rock - which ended up borrowing nearly 27 billion from the Bank of England - but the company has sought safety in the arms of a bigger bank, Spain's Santander.
Santander bought Abbey - another former building society - in 2004, and added A&L to its collection with a 1.3 billion deal announced in July.
A&L's shareholders approved the takeover earlier this month after being told the deal would provide "certainty and stability" amid the global banking crisis.
Halifax demutualised in 1997 and merged with Bank of Scotland just four years later. The combined HBOS group has been another crunch victim and has agreed a takeover by Lloyds TSB, which bought Cheltenham & Gloucester in 1995.
Life has also been tough for several building societies which have hung on to their mutual status this year.
Two building societies announced mergers with the Nationwide this month after turning to the mortgage giant for shelter.
The Cheshire and Derbyshire building societies racked up losses in the first half of this year and faced increased uncertainty because of the current turmoil in lending markets - which experts predict will lead to further consolidation in the sector.
Full coverage of the Bradford & Bingley crisis
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Tuesday 22 May 2012
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