Crusader for mutuality ideal

These are interesting times for building societies. Cheltenham & Gloucester is soon to be swallowed up by Lloyds Bank after a 15-month courtship involving fistfuls of cash, two High Court battles and an emergency Act of Parliament.

Halifax and Leeds Permanent members are deciding whether to tie the knot, the first stage of their conversion to bank status. Consummation of this marriage has come at the same time as Abbey National's wooing of National & Provincial.

Abbey's proposal is doubly ironic. It was Abbey, after all, which first began building societies' love affair with the idea of abandoning mutuality when it converted to a bank in 1989.

The now-familiar concept of a cash-or-shares dowry was initiated by TSB in 1986. But it was Abbey's move to allot shares to all its members that set a crucial example for subsequent conversions.

Rumours are now rife within the industry - just who is flirting with whom? Who will be next to seek conversion? Will the building societies movement win a custody battle over its remaining members?

The movement has found its ideal defender in Ken Culley, chief executive of Portman Building Society and incoming chairman of the Building Societies Association.

A dyed-in-the-wool building society man, he has spent most of his working life in the movement, starting as a clerk with Cheshire 33 years ago.

Of Portman, he says: "We have evolved through a series of well-thought out and strategically planned mergers, while trying to maintain the traditional values that members have always associated with building societies.

"We try to give the comfort of knowing that savings are safe and easily accessible."

This emphasis on the traditional extends to Portman's refusal to sell sophisticated investments: "I do not want to run any products where there is any form of speculation, or risk to members of them losing their capital. If people want unit trusts and other equity-related investments, the Portman is not the place for them."

Is this not a dangerous attitude at a time when building societies are facing an unprecedented challenge to their mutual status? Not for Portman, apparently. In his 12 years there, the society has grown from having £100m under management to looking after £3.25bn. It now has 600,000 savers and 80,000 borrowers.

It is these values which Mr Culley believes are crucial for the rest of the movement, and which he contrasts to the attitudes of banks and their shareholders: "Building society investors do not join to obtain speculative gain or in the belief that a share price is going to go up or down."

If that is the case, are demutualising societies letting their members down?

"Other societies have taken a strategic position where they think that the decisions they are recommending are in the best interests of their members," he says diplomatically.

"That might be so for them, but it is not necessarily so for the rest of the industry. I believe societies' long term interests are better served by retaining their status for future generations."

Mr Culley dismisses suggestions that mutuality is a sham, which brings few tangible benefits to members: "A member has rights because his savings give him the right to have a say in the activities of the society."

To those who argue that depositors' money is virtually as safe with a bank as in a building society, he replies: "If, 10 years ago, BCCI decided it wanted to buy a society and had paid members £500 to do it, how many of them would now be having sleepless nights worrying that their money is safe?"

By contrast, Mr Culley says, no building society account holder has lost money. Despite his arguments, members in those societies now engaged in demutualising don't appear to listen. Or do they?

"I think it is a question of leadership. If a board of a society wanted to, they could easily explain to their members why it is in their interests to remain mutual. Were there a vote under those circumstances, there is no doubt how it would go.

"I find it difficult to understand how a major society could say recently, that the days of mutuality are numbered. I would strongly refute that. There is no logic in that statement."

At times his defence of mutuality assumes elegiac tones:"There are thousands of people who remain loyal to their society because it has helped them, their parents, grandparents and children.

"Building societies have been part of the bedrock, the very fabric of this society and I think that if we lose them this country will be a lot worse place."

His clinching argument is simple: "You join the National Trust and suddenly Walt Disney comes along and says it wants to buy the Lake District. Are you in a position to sell it?"

Even so, he wryly observes that departures from the movement may shortly elevate Portman itself to the dizzy heights of a top-10 society: "It was always my ambition to be there. Now I might realise it by sitting on my backside."

Surprisingly, Mr Culley does not see his period of office at the BSA as a defensive one. He points to changes proposed last year by the Treasury, which will give societies greater powers to borrow money on the money markets and make unsecured lending, as a positive feature.

"If societies get the wider powers, they will be able to compete with any company in the financial services industry."

Nor does he believe that banks and other lenders have succeeded in a long-term encroachment on societies' traditional territory - mortgages: "We lost market share in the early 1990s but have started winning it back. One feature has been the virtual exit from the market of centralised lenders. Although the market is very tough at present, we are getting a larger share of it."

Despite his traditional leanings, he sees the need for change in several areas, particularly for home loans: "There are changing patterns of employment, with people moving in and out of part-time or temporary jobs more often.

"Fixed-rate mortgage products do a lot to help them. But it may be possible to offer alternatives, such as credit facilities which can be drawn on during a mortgage, when a person is going through a rough patch."

Mr Culley is generally critical of the way he feels the Government has failed to help homeowners: "On balance the changes that are taking place are not helpful. The reduction in Miras and the withdrawal of income support have not done much for an ailing market.

"The standard mortgage interest rate proposals from the Department of Social Security are not a good idea.

"We tried to explain to the DSS the problems they would have and that they would be more complicated. Far simpler to just pay people what their existing rate is.

"Existing borrowers have had a raw deal from the Government. We had a prime example in the confusion over taxation of insurance policies taken out to protect mortgage payments."

As BSA chairman, he intends to serve all members,. He also sees an active promotional role: "I would like to promote all the traditional benefits of building societies and convince everyone that there is a strong role and a future for them."

Without the need for any more shotgun weddings.