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Building societies are making a “comeback”, says Robin Fieth, head of the UK’s Building Societies Association.
The members-owned lenders which trace their origins back to 1775, when a group of builders pooled their savings together in a Birmingham pub to help each other buy homes, were hit by a wave of privatisation in the 1990s.
But in the past decade, the mutuals have grown to secure a 23 per cent share of the UK mortgage market and 19 per cent of the cash savings market.
They are now at the forefront of a wave of dealmaking. Nationwide is set to buy Virgin Money for £2.9bn, the largest M&A deal in UK banking since the financial crisis. The Co-operative Bank will also return to mutual ownership in a merger with Coventry Building Society.
Building societies say their ownership structure means they can act with their customers’ best interests in mind rather than to please shareholders. But what does this mean in practice?
How does one qualify for membership?
Not all customers of building societies are automatically counted as members. Membership is free and automatic for customers who hold qualifying products but eligibility varies according to each building society. Customers with a savings account or a mortgage generally qualify, while Nationwide, the largest building society, also counts current account holders.
Regardless of the size of a member’s savings or mortgages, building societies operate on the principle of “one member, one vote” during their annual general meetings. There are restrictions, however, including for people under the age of 18 or with less than £100 in savings.
What are the rewards?
Building societies say they are able to invest their profits to benefit customers rather than to reward shareholders through dividend and share buybacks. One example of this is Nationwide’s “fairer share” payments through which it will distribute £100mn in payouts to 4mn of its 16mn members this year. Other societies use profits to keep savings rates high or mortgage rates low and to invest in their local communities.
While the big banks are retreating from the high street, mutuals’ share of the branch network has doubled over the past 10 years.
How much power do members have?
The main perk of being a member is the ability to attend AGMs to vote on proposed changes to societies’ rule books, elect and re-elect directors as well as ask questions of the board.
AGMs also include advisory votes on executive pay. Last month, about 95 per cent of voting members approved the tripling of Nationwide chief executive Debbie Crosbie’s maximum long-term bonus to £3.4mn.
Members can also request resolutions to be discussed and voted on ahead of the meeting. However, this is subject to certain exemptions. Member-proposed resolutions must have enough support from other members. The board may also reject “frivolous or senseless” resolutions, according to the BSA.
This year, Nationwide members sought to put the building society’s planned takeover of Virgin Money to a members’ vote. But they were blocked from doing so as the society insisted it was not required.
James Sherwin-Smith is running for election to the board after having campaigned to put the takeover to a vote. He said: “The democratic power of the mutual ‘one member, one vote’ governance model has been steadily eroded” as many customers are unaware of their rights.
“The degree of influence that the membership has on society affairs is dependent on how active the membership is — if members are passive, and don’t exercise their powers, the organisation becomes increasingly autocratic,” he said, flagging a low turnout at Nationwide’s latest AGM.
