Respect for old mutuals from society champion.
There can be few more stalwart champions of building societies than Sir James Birrell - the man who famously said no to demutualisation when he was chief executive of The Halifax.
Circumstances, of course, changed rapidly after he retired from the Halifax in 1993.
The society's merger with the Leeds and its subsequent conversion to a bank has been one of the landmarks of the financial services scene of the past ten years.
During those years Sir James has viewed events from the vantage point of a non-executive director of the Birmingham-based Wesleyan Assurance Society.
Now, aged 70, Sir James has retired from the Wesleyan board and he recently talked to The Birmingham Post about a trend that has not always worked in favour of the consumer.
Sir James trained as a chartered accountant after doing National Service in the RAF and joined the Halifax 1968. He retired 25 years later as chief executive.
It was during his time at the helm of what was then the world's biggest building society that the mutual movement's equivalent of the City of London's Big Bang - the conversion in 1989 of Abbey National to a listed bank - occurred.
Pressures had been building up among societies for some time, Sir James said.
That was because societies felt that capital-raising powers were too constrained.
They were granted new powers by the Building Societies Act 1986 - including the power to convert.
'The building society movement is very much an 'old empire' movement abroad and a lot of the South African and Australian converted and to some extent we were looking at conversion to see what was in it,' Sir James said.
'At the time, the Halifax took the view that there were two reasons for converting from the business point of view: if you needed additional capital or if you wished to develop the business in a way that was not possible under regulation, such as by taking over other businesses and expanding out of your traditional business.'
The Abbey conversion and the allocation of free shares brought home to millions of savers and borrowers that being a member of a building society could result in a nice windfall.
The Halifax sat back in 1989 and spent several months debating whether or not to follow the Abbey's lead - before deciding to keep its mutual status.
'We saw no benefit - in fact it was the opposite,' said Sir James.
But the trend was developing and other societies followed the Abbey's lead.
Eventually the Halifax was to follow suit - largely because it wanted to merge with near neighbour the Leeds and members' expectations of a big windfall had been raised.
'Looking back at it now, even though I personally felt disappointed and thought that being the world's biggest and best building society was a damned good business proposition and that we should go on being bigger and better, but my successors wanted a bigger, broader business plan.
'By converting they were able to take over insurance companies and in the end merge with the Bank of Scotland.'
In contrast, the Abbey conversion can only be regarded as a failure, Sir James believes. As a bank it moved away from its core mortgage market and moved into treasury and finance operations that went badly wrong.
Now, only half the size it was when it was number two to Halifax, it is having to claw its way back into its old markets.
'Conversion should only be done for sound business reasons,' Sir James says, adding: 'In the long term mutuals ought, and do in most cases, to be offering better terms to their members/customers, although those members/customers, if asked they want several hundred pounds-worth of free shares are always going to say yes.'
Sir James believes that in the building society sector at least, the conversion drive has largely run its course although some smaller institutions are likely to be swallowed up in mergers and takeovers by bigger rivals.
And he believes that conversion has been good for some small, economically and efficiently run societies, such as the Tipton & Coseley.
But asked if he thinks that on the whole the British public is better off as a result of demutualisation, Sir James answers with an unequivocal 'no'.
He says: 'It has been short term gain for long term loss. The mutual sector provided a very good business bargain over the long term for its members, although that's not to say that some didn't get it wrong.'
He is critical, for example, of the slowness of some societies to pass on base rate increases to their saving members.
Nor does he think the 'almost universal desire' among big financial institutions to be one stop shops lending money, accommodating savings and selling insurance products, has yielded benefits.
In the ten years since he retired from the still mutual Halifax, Sir James has served as a non-executive director of the Wesleyan - an organisation he praises for the professionalism of its management and ability to adapt to changing markets.
He believes that despite the Equitable Life scandal and the capital pressures that look like seeing Standard Life abandon its once cherished mutual status, the life sector is in good shape.
He holds that view despite the bad press that with-profits products, endowment mortgages especially, is getting.
Sir James views the endowment crisis like this: 'People who bought endowment mortgages didn't buy them because they understood them.
'They overlook a very important part of the bargain - that is that the monthly payment consists of two elements, building society interest and the insurance premium.
'Now, the loan interest element has gone down significantly and if people had put the money they were saving there into their endowments there would be no problem.
'The very factor that brought interest payments down has affected the endowment.'
Sir James Birrell (right) with Lowry Maclean, chairman of Wesleyan Savings Bank
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|Publication:||The Birmingham Post (England)|
|Date:||Jun 26, 2004|
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