Our Mutual Friends in the North

Events have turned the world upside down in the provision of financial services. It is crystal clear that the demutualisation, the conversion of Building Societies into banks has been a total disaster. Building Societies have not been immune to the global banking crisis but their record compared to those that took the route of transition into banks is stark. There are the high profile collapses like Northern Rock, HBOS and Bradford and Bingley. But not one of the converted building societies has survived as a viable independent business.

Many of us argued this was a mistake from the start. Some time ago the All Party Parliamentary Group for Building Societies and Financial Mutual’s under took an enquiry into the true costs of demutualisation. In evidence the Building Societies Association said it would not be surprised if the full costs of all the demutualisation’s amounted to well over £1billion. Well we now know that was just the first billion!

That cost did not include the loss of over a quarter of their branch networks. There are technical arguments about the merits or demerits of mutuals over plcs but current events have more than demonstrated the merits of mutuality.

Greed and privatisation did not just take out those ex-building societies we also lost the Trustee Savings Bank and The National Giro Bank. Almost every City had a Trustee Savings bank; my own personal favourite was the Birmingham Municipal Bank which at its peak had three quarters of a million account holders. Following amalgamation in the 1970’s to form the national TSB it in turn disappeared into the private sector when it merged with Lloyds in 1995. The National Giro bank started out in 1968 as the “people’s bank” an innovative post office bank that was the first to pay interest on current accounts. It too succumbed to privatisation being swallowed by the Alliance and Leicester now part of Spanish banking giant Santander.

Now we have the chance to turn the tide against privatisation. The demand was made loud and clear at the Co-op Party conference that we must start a massive campaign for the remutualisation of Northern Rock.

Northern Rock will be slimmed down in public ownership but will still have all the flaws of a mortgage bank and will be no more sustainable in the private sector than it was before the government bail out. The Government will then look to sell the remnants off to a major bank and it will disappear as an independent institution.

When “greed was good” demutualisation was relatively simple – first bribe the management and then the members and get them to vote for a flotation. Remutualisation is more complex but not impossible.

Last year Britannia Building Society successfully remutualised 850,000 customers of the old Bristol and West Building Society which had been taken over by the Bank of Ireland. In buying the 65 strong Bristol & West branch network and £4.5bn savings book from the Bank of Ireland for £150m the customers became members once again.

Interestingly the Britannia is now in talks with Co-op Financial Services which includes The Co-op Bank, Smile and CIS about a possible merger. The Co-op Bank owned by the Co-op Group is not in itself a Co-op itself and this potential merger depends on changes to the Building Societies (Funding) & Mutual Societies (Transfers) Act, which is currently at the House of Commons committee stage. Legislation is expected to be in place by the end of the year.
So it will be possible for mutual’s to take on and remutualise failed mortgage banks - we have to begin to make this the preferred option for the Government. We have to turn the tide in favour of social ownership.

“Now is the time, in the wake of the collapse of Northern Rock and the wider economic downturn to reinvigorate the debate about social ownership in the 21st century”, says John McDonnell in the new Left Economics Advisory Panel pamphlet, Building the New Common Sense, Social Ownership for the 21st Century. He adds, “We need to be creative, imaginative and bold in our demands and our actions – and that means tackling the fundamental question of ownership.” I could not agree more and let us start by giving Northern Rock back to the people of the North East!