YBS chief’s call to return Rock to the mutual sector

Iain Cornish, chief executive, told the Yorkshire Post that remutualisation would boost competition and stability in the financial services industry and warned ministers against selling off the bank to the highest bidder.

Any investor who paid a premium for Northern Rock would have to manage the business in “the most aggressive and profit-seeking way”, which could create the conditions for another banking failure.

The Government’s decision, expected later this year, will be “a litmus test” for the coalition’s stated desire to promote diversity in the financial sector, said Mr Cornish.

He reiterated the takeover credentials of Yorkshire, which has acted as a lead consolidator in the sector.

The mutual movement received more backing yesterday from one of the industry’s most influential regulators, who was speaking at the Building Societies Association annual conference in Birmingham.

“Mutuals make an important contribution to the fabric of society,” said Andrew Bailey, executive director and chief cashier at the Bank of England and the designated deputy CEO of the new Prudential Regulatory Authority.

He described the demutualisation process, which peaked in 1997, as a “failed and very costly experiment” and noted that not one had survived as an independent entity under private ownership.

“As we kno w, a number lost their independence in very costly ways which damaged the stability of the financial system,” he added.

Despite growing clamour for the remutualisation of Northern Rock, there are real concerns that Chancellor George Osborne will try to maximise the return on the Government’s stake as soon as possible.

The political commentator Philip Collins told the BSA conference that Cabinet Office minister Francis Maude has been “faithfully and eloquently” promoting the role of the mutual model in the financial system and wider public services but is facing a battle with the Treasury over Northern Rock. Mr Collins, a former speech writer for the Prime Minister, said: “The big problem you have got is the windfall they see. They are not talking about it, but it is on the imaginary balance sheet already.”

Andrew Neil, the BBC broadcaster, told the conference that ministers are planning to use the windfall from the sale of stakes to help fund tax cuts before the next general election.

In response, Adrian Coles, chief executive of the BSA, urged the Government to put the long-term interests of the consumer ahead of short-term political and financial goals, arguing that building societies have a much better record of customer service and place members’ interests – rather than shareholders’ – at the heart of decision making. He said Northern Rock could become a standalone mutual, with redeemable shares paying back profits over time, or part of an existing mutual, which would probably involve a large upfront payment.

Ministers are said to be considering a £1.5bn price tag for Northern Rock, but this has been dismissed as too high for a loss-making organisation by Mr Cornish.

Yorkshire Building Society is set to complete its merger with Norwich & Peterborough later this year, which will give it 178 branches. Northern Rock has 74.

Mr Cornish said the Northern Rock brand still has value, despite its poor management in the lead up to the credit crunch. “It’s certainly not irredeemably tarnished,” he said.

Meanwhile, polling firm Harris Interactive revealed the findings yesterday of new research into the mutual sector, based on a survey of 2,000 people.

It found while consumers believe they get better customer service from mutuals, the sector should do more to promote its distinctiveness from shareholder-owned banks.