Nationwide windfalls loom

The 3.5 million savers and borrowers who count as members of Nationwide building society could be due windfalls averaging as much as pounds 2,000 a head if, as expected, rebel candidates are elected to the society's board of directors this Thursday. The windfalls could be paid by next Spring, with a sale of the society the more likely option, rather than a stock market float.

Five windfall-seeking candidates, led by the self-styled carpetbagger- in-chief and former butler Michael Hardern, are standing for election to the board of the Nationwide, the biggest remaining mutual building society and one of the UK's biggest businesses.

The rebels are opposed by five candidates proposed by the board itself, who support the society's existing policy of remaining as a mutual and attempting to prove the benefits through keener interest rates.

Brian Davis, Nationwide's chief executive, said last week that if savers and borrowers voted for the rebels it was "most likely" that the society would have to sell out or convert into a bank. Selling out would be the quicker option and more likely to catch the presently high prices put on financial businesses. City advisers are believed to have valued the Nationwide at pounds 7bn and Prudential, the insurer, is seen as a likely bidder.

A rebel victory would also lead to Mr Davis resigning as chairman of the Building Societies Association straight away.

The likelihood of the rebels winning increased late last week when it was revealed that more than a million of the society's members had already voted - three times higher than in the same elections last year. The vote, which is by post only, closes on Tuesday at 11am. A high vote is seen as favouring the rebels because it means more savers are likely to have voted. Savers generally have more to gain from building society handouts.

If the price of a windfall is a small worsening in rates, this stands to hit borrowers harder. Most mortgage balances are higher than savings balances, and it is generally easier for savers to switch to another institution once they have their windfall.

The news of the expected victory is likely to prompt a wave of topping up of accounts by savers when Nationwide branches open tomorrow with the aim of maximising any windfall and beating any cut-off date, which could be set for later this week. But it is not possible for new customers to simply walk into branches and open accounts straight away to become members - the society now runs a waiting list.

A rebel victory would also increase the disarray in what remains of the building society movement, already swamped by new account openings and in most cases forced to increase their minimum opening balances to discourage speculators. The remaining societies would come under increased pressure to pay windfalls, too. Late last week it emerged that Birmingham Midshires had appointed investment bank JP Morgan to advise it on its options. The society is believed to have had trouble finding an acceptable suitor and has looked rudderless.