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Our mutual friends?

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26/05/2006

Despite well-publicised demutualization decisions in recent years by the likes of Abbey and most recently, Standard Life, new research shows consumers don’t even know what it all means anyway. Pauline McCallion finds out more

The British public seem to be largely uninformed about mutual status and what it means, According to the Association of Mutual Insurers (AMI), 65% claim to not understand why an organisation would choose to remain a mutual or convert to a public limited company (plc). Its survey also showed seven out of 10 respondents were unable to give a satisfactory explanation of the differences between the two.

People holding a savings account, mortgage or certain other types of financial product with a building society or mutual are members and therefore have rights in terms of voting, receiving information and attending and speaking at meetings. Mutuals have a board of directors that decides on strategy and direct the organisation’s affairs. They have no external shareholders to report to, as banks do, so building societies are seen as more likely to keep the interests of their members uppermost in mind when making decisions.    
 
This decision has been made by the members of several high profile societies over the years. Standard Life members are voting on the issue on 31st May and members of the Abbey National (1989), Alliance & Leicester (1997) and Halifax (1997) have all voted for demutualization in the past. In such an event, members typically receive either shares or a payout to cover any products they hold with the mutual.

Although the financial rewards of demutualisation often win out in these situations, some account holders prefer the reliability and trustworthiness which is regarded as going hand-in-hand with banking with a building society. A recent survey by Norwich and Peterborough Building Society, for example, revealed 93% of its customers believed N&P would better serve their communities by remaining a regional, mutual building society.

The best thing about the society, according to 12% of respondents, is the convenient location of their branches. Just over 14% of N&P customers visit their local branch every day, with 46% dropping in once a week. Branch closures have been a hot topic among banks and building societies in recent years, after a glut of high-profile closures across the UK.

According to the Building Societies Association (BSA), about one in five bank and former building society branches have closed since 1995. This is in contrast to one in 20 closed by the top 10 mutual building societies over the same period. The BSA’s report points out that at a time when many banks are reporting record profits, they are still closing branches. It claimed even profitable branches were being closed if they were not making a big enough contribution to the “bottom line”.

Rachel Griffiths, vice president communications of the AMI, highlights concerns that members are often distracted by the short-term financial benefits of demutualisation, rather than considering the long-term benefits of mutual organisations.

Echoing this sentiment, Adrian Coles, director-general of the BSA, adds: “While some people may have benefited from the temporary windfall of a demutualisation, there are many more communities that today do not have a branch within easy access, as a result.”

Thus the message seems to be that mutual members given the chance to vote for or against demutualisation need to make the effort to find out what the wider results of their decision would be. Going for the short-term option of a demutualisation windfall is all well and good, but what will the disappearance of your local friendly do to your community?

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