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Domino theory fails again to match reality.

Those of us who can remember the Vietnam War for those who cannot, it was one of the more unnecessary wars we may recall the mumbo jumbo that underlay America's thinking in staying with a disastrous campaign for so long.

It was called the Domino Theory and proved as flawed in its logic as did the supposition that the Cold War would continue indefinitely.

In short, the Americans felt they had to hold the line at all costs in South Vietnam because if it succumbed to communism then a host of other Far East countries would follow.

If you lost Vietnam, then Cambodia and Laos would fall, probably Thailand would be undermined, and who knows who else might follow.

It seems all very silly now.

But back in the commercial world the Domino Theory seemed to be enjoying a new lease of life with the apparent demise of the building society sector.

Once two or three of the biggest dominos fell, such as the Halifax, the Woolwich and the Alliance & Leicester, then the rest would follow, it was argued.

The reality, albeit being a million miles from the jungles of Vietnam, is not working too well in the business jungle either.

The line has for the moment been held and something of a fightback has developed.

The Nationwide, the Coventry, the Britannia, the West Bromwich and a host of others have made clear their opposition to being forcibly turned into banks.

And not only that, but the societies have started undercutting the big boys by returning profits to their members including cheap mortgage rates and generous savings rates.

There are now fierce exchanges of artillery fire in the High Street between the banks and the mutuals which is why when base rates go up these days there is no guarantee that mortgage rates will follow.

This is all to the good of the consumer.

Frankly, we need a strong building society sector as a real competitor to the banks.

But the resurgence of the building societies is also throwing up some interesting "victims," with the Birmingham Midshires' situation among the most intriguing.

The Midshires' deal to sell itself to the Royal Bank of Scotland looked good a year ago. Today it is looking much more like a takeover too far.

So it was amusing last week, a week in which John Gregory took over from Brian Little at Aston Villa and promised to put an end to "bitching and whinging," that we should have got leaks from within the Midshires bitching and whinging about the price of the deal.

In short, the Stock Market has risen so much that the Midshires' price of just over pounds 600 million is now, say the pundits, looking a steal.

The Midshires is suggesting there may have to be a renegotiation if it is to gain the approval of shareholders. The Royal Bank is having none of it.

So now we have at the Midshires a possible rebellion at both ends an action group wanting to keep the society mutual and a bunch of grumbling carpetbaggers who think they are being shortchanged. We could be on the verge of a rather entertaining scrap.

That would soon have Birmingham Midshires' executives going ex-directory again.

But let us move on, because all this has to be put in the context of the current merger mania going on in the City with, in particular, continued speculation in the banking sector.

Barclays wooing of the NatWest has been looking more desperate by the day, but Martin Taylor has been nothing if not persistent. The chances of this getting through the Government and competition authorities look remote and anyway Lloyds TSB has threatened to make it the mother of all bid battles should a surprise green light emerge.

Meanwhile, Lloyds TSB says it definitely wants to spend its pounds 1 billion cash pile and would like to buy Credit Lyonnais.

The French would never allow it and so the bank has been linked with Abbey National, Nationwide or the Prudential.

All I can say is why bother with the Cheltenham Festival when there are so many runners and riders among the banks and building societies?

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Publication:The Birmingham Post (England)
Date:Mar 7, 1998
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