The return of the building society: Credit crisis, what credit crisis?

Graham Beale, the chief exec-utive of Nationwide Building Society, will have a little more time on his hands next summer than expected. As proud sponsors of the England football team, Nationwide's executives had been planning a series of trips to Austria and Switzerland next June for the European Championships. Now they'll be staying at home (particularly since Wales, Scotland and Northern Ireland, all of which also receive Nationwide sponsorship, haven't made it either).

Unlike almost everyone else in England, Nationwide would not criticise Steve McClaren yesterday. Eight years ago, when the then England boss Glenn Hoddle made some ill-advised remarks about karma and the disabled, Nationwide called for him to go, and found itself sitting uncomfortably in the middle of a media storm. These days it is much more cautious.

Still, this sort of caution has served the building society very well. Its results for the first half of the year, published yesterday, make impressive reading – not least a 29 per cent increase in pre-tax profits (excluding merger and disposal costs) to £394m.

The most striking figure in those results was a 96 per cent increase in deposits from savers compared with the same period a year previously. Some of that rise reflects Nationwide's takeover of the Portman Building Society, completed earlier this year, but a good chunk of the new money came from customers of Northern Rock, moving their money away from the distressed lender to a safer home.

"We've had queues outside our branches over the last few months too," said Mr Beale. "But the queues were to put money into our accounts rather than take it out."

Why is Nationwide perceived to be a safe haven? One reason is to be found in the society's report on its mortgage lending activities during the first half. The UK's second biggest mortgage lender's advances were a third down on the previous year, collapsing from £5.6bn to £3.3bn.

However, this decline reflects not a failure by Nationwide's sales staff but a deliberate decision to rein back exposure to a market the society deemed increasingly risky. In other words, that word caution again.

"We took the view at the beginning of this year that our rivals were driving down pricing, loosening affordability constraints and sacrificing quality for market share," said Nationwide's retail director Stuart Bernau. "We felt we had to stick to very basic principles – it's always painful not getting your natural share of the market, but as the year has worn on, it looks to have been a wise decision."

Indeed. In the US, the sub-prime debt of which Nationwide has steered clear has triggered a global credit crunch. In the UK, lenders with exposure to mortgage borrowing deemed in any way non-prime are now marked down by investors.

Still, Nationwide has an advantage over many of its mortgage market rivals. As a mutual, owned by its members, the society is free from the often short-term demands made by shareholders. Nationwide has to compete, of course, and strategic decisions are as crucial to its business as anywhere else, but it can afford to concentrate on the medium and longer term.

A senior figure at one of Nationwide's plc competitors says he wishes his bank could have taken such a view. "Pulling back from the mortgage market now looks to have been a really smart bet, but we would have felt very uncomfortable with a strategy based on giving up market share and reducing lending," he said. "As it turns out, our shareholders would probably have thanked us for that approach, but we would never have risked the investor fury such a slowdown in sales would ordinarily produce."

Similar thoughts may have occurred to Adam Applegarth, the chief executive due shortly to quit Northern Rock. Until the mid-nineties, Rock was, along with Nationwide, Halifax, Alliance & Leicester and Bristol & West, a stalwart of the mutually owned building society industry. Nationwide is alone in that list to have remained a society, despite several campaigns for demutualisation led by carpetbaggers seeking windfall payments.

The fall of Rock is in some ways a natural consequence of this rash of demutualisations. As a regional mortgage lender thrust into a super-competitive banking sector in which M&A activity has wiped out most small independents, Rock's executives felt compelled to expand. Securitising the mortgage book rather than depending on savers' cash to make loans – Nationwide finances 70 per cent of mortgage advances from deposits – was a nifty way of growing quickly.

"I think Northern Rock's executives decided their business model, which was – and is – very efficient, would enable them to jump from being the fifth or sixth largest player in the market to competing with the likes of ourselves and Halifax [the UK's No 1 mortgage lender], said Mr Bernau. "They actually had a very sophisticated credit analysis but unfortunately the one absolute necessity was a liquid credit market."

Nationwide is far from the only building society to have benefited from the more considered, long-term approach that mutuality enables a business to take, though it is now the giant of the sector (and its consumerist advertising campaign, starring Mark Benton, above, has been a huge success). In the insurance industry, Standard Life, Europe's largest mutual business, felt compelled to float on the stock market last year, to improve its funding position, but building societies have not faced the same difficulties.

Adrian Coles, the director-general of the Building Societies Association, has been well-placed to observe the re-emergence of his members in the affections of customers. Last week, the BSA said the sector had received £3.02bn in new savings deposits during October – a record and more than four times as much as in the same month last year.

Mr Coles said savers believed cautiously run, mutually owned building societies represented a safe haven. "It seems the majority of these deposits are funds withdrawn from Northern Rock," he said. "The attractive savings products offered by building societies continue to appeal to customers looking for the best home for their money."

Nor have mortgage borrowers forgotten the attractions of the safe and sensible mutual sector. As the figures in the charts above show, the sector has done a much better job of maintaining its share of the home loans market over the past six years than its banking rivals. Societies may have been squeezed marginally by specialist lenders, but not to anything like the extent of the banks.

There was a time, not long after Northern Rock's demutualisation in 1997, when analysts were queuing up to call time on the future of the building society. But the sector, led by Nationwide, has defied the odds. While there has been contraction, with several societies merging or succumbing to takeover offers from larger societies, many customers have stayed loyal. Those that went elsewhere now seem to be coming back.

It is worth noting, however, that the type of short-term decisions forced upon you by stakeholders – whether investors or customers – are not always wrong. Like his boss, Mr Bernau refused to step into the England football fray last night. Would a more long-term approach to football team management result in success (rather than sacking the manager after a single failed campaign)? Nationwide would not be drawn.