In search of the next windfall

There can be no doubt that Mr Justice Chadwick arrived at a popular and well-considered verdict this week.

His ruling that Halifax and Leeds Permanent building societies can give away a basic £600 in free shares to 10 million savers and borrowers sanctions a remarkable improvement on the return of the average building society account - even if members must wait until the merged society eventually converts to a quoted bank.

Most savers with Cheltenham and Gloucester - which yesterday voted to accept the £1.8bn offer from Lloyds Bank are also going to do well. They will receive a payment of £500 plus 13 per cent of their outstanding balance.

However, because cash handouts are treated differently from share offers under the 1986 Building Society Act, C&G borrowers and new investors will get nothing when their society goes public.

While Parliament intended the 1986 Act to prevent investors moving funds rapidly between societies in the hope of windfall gains, the Chadwick decision has ratified a loophole in the law.

The £600-plus question is: in which of the remaining building societies should you be investing £100. You might also be considering if it will be worth transferring your mortgage business.

The building society movement is convinced that more deals are on the way. Fierce competition in the mortgage market is putting pressure on the remaining societies to convert to bank status. This enables them to raise funds on the international money markets, a much cheaper alternative than paying high rates of interest to savers.

Cheltenham and Gloucester plumped for being taken over by a bank. However, the industry consensus is that most other societies would prefer to merge with another society and then convert to plc status.

The Halifax merger with the Leeds is being closely watched. If it goes through without a hitch, it is likely that at least one other deal on similar lines could be announced by the end of the year.

According to industry sources the societies that are keenest to merge and convert include the National & Provincial, which is Britain's ninth- largest society, and the Birmingham Midshires, the 13th-largest.

Those seeking at least a merger are thought to include Alliance and Leicester, Britain's fourth-largest, which also wanted to merge with Leeds.

The Bradford and Bingley, which is the seventh-largest, is also said to be looking for a merger, as is Woolwich, the third-largest.

Woolwich's chief executive Donald Kirkham, a stern traditionalist and champion of the virtues of mutuality, is due to retire this year and it is likely Woolwich will follow the Halifax route and merge with a smaller society, possibly converting to a bank.

It must be stressed, however, that there is no certainty which societies will merge or convert or when.

The only way to ensure that you may be eligible for a windfall on conversion is by spreading your savings - perhaps in £100 deposits - around the top 10 remaining societies. There are disadvantages. First of all there is the hassle of going to 10 different branches and opening an account. There is also the time factor. Members are eligible for payments only when a society converts and that could take years.

This means locking savings in during the lengthy merger and conversion process when the society will be able to keep its savings rates lower than its competitors.

There have already been some complaints that Cheltenham and Gloucester has done this, although these are rejected by the society.

Most of the top 10 remaining societies are actively engaged in talks, but most are in preliminary stages. There is no guarantee that further deals will actually happen.

However, in the light of the nation's obsession with the National Lottery, punting a limited amount of your savings around the societies may seem like an attractive bet.

At the very least, you will be left with your savings at the end - unlike the lottery.