Building Societies

EdInvestor

The West Brom has recently been downgraded. I would move.

http://www.thisismoney.co.uk/saving-and-banking/article.html?in_article_id=447883&in_page_id=7

seven-day-weekend

Thanks Edinvestor, my husband is reading the article right now (they're his savings)!

Thanks also to everyone else who has replied.

opinions4u

moonrakerz wrote: »

I would disregard most of this post - the author didn't even read what I had put, the little he did read has been ignored !

If a BS can raise 50% of it's funds commercially then it is twice as safe as a bank !
Northern Rock had 27% of it's funding from it's customers (the rest being borrowed !), Nationwide had 71% - I know which of those is the more prudent !

"The average proportion of funds raised by building societies from the wholesale markets is 30%." - BSA
"Building societies are largely funded by retail deposits rather than wholesale markets" - BSA
"It is interesting to note that Virgin Group, in announcing its interest in taking over Northern Rock last month, said it wants to make the bank "more like a building society" - Paliamentary Select Committee report on Northern Rock

The Building Society's cash deposits rose 70% on March 2007’s takings to March 2008:- just shows who the public prefers to trust with their money !

So how did Cheshire BUILDING SOCIETY and Derbyshire BUILDING SOCIETY end up in trouble when they are supposedly safer than banks?

Lynt_3

You never (well very rarely) hear anything about Principality BS on the news etc.
What is the best way of keeping an eye on what is going on with them?
I know they had a drop in profits this quarter, but apart from they aren't often mentioned anywhere.
Is it because they are so small and therefore not newsworthy?

I hope they manage to keep going

Plasticman

EdInvestor wrote: »

The West Brom has recently been downgraded. I would move.

http://www.thisismoney.co.uk/saving-and-banking/article.html?in_article_id=447883&in_page_id=7

Keep it quiet - I can feel a 'run' coming on..................

moonrakerz

opinions4u wrote: »

So how did Cheshire BUILDING SOCIETY and Derbyshire BUILDING SOCIETY end up in trouble when they are supposedly safer than banks?

I will explain again, as the thrust of my original post appears to have gone way over your head.

I didn't say that a BS would never get into trouble, I said that if one did the other Building Societies would rally round and protect the owners (ie: the customers !) of that BS.
My original post:- "When a Building Society hits trouble the other Societies step in and help them out, just as happened with Nationwide and the Cheshire/Derbyshire Building Societies:- no asking for Govt help, no whisper campaigns to drive the share price down."

And I still believe that a Building Society is a safer financial institution than a bank.

The banks have shown a total inability to do this unless they think they can pick their pound of flesh or two off the corpse of the failed bank.

The Cheshire had made a loss of £10.5M. Northern Rock made a loss in the first 6 months of this year (AFTER the "rescue plan") of £585M - and don't forget the £17.5bn it owes every taxpayer in this country !

opinions4u

moonrakerz wrote: »

I will explain again, as the thrust of my original post appears to have gone way over your head.

I didn't say that a BS would never get into trouble, I said that if one did the other Building Societies would rally round and protect the owners (ie: the customers !) of that BS.
My original post:- "When a Building Society hits trouble the other Societies step in and help them out, just as happened with Nationwide and the Cheshire/Derbyshire Building Societies:- no asking for Govt help, no whisper campaigns to drive the share price down."

And I still believe that a Building Society is a safer financial institution than a bank.

The banks have shown a total inability to do this unless they think they can pick their pound of flesh or two off the corpse of the failed bank.

The Cheshire had made a loss of £10.5M. Northern Rock made a loss in the first 6 months of this year (AFTER the "rescue plan") of £585M - and don't forget the £17.5bn it owes every taxpayer in this country !

So a system where only 1 building society is strong enough to prop up others is better than one where two or three banks could step in to buy a competitior?

Both banks and building societies are in difficulties at the moment. Generalising that one sector is safer than the other is naive. Is HSBC or Barlcays stronger than the Britannia? Is a non-transparent merger of societies with problems a good thing when the City doesn't have to scrutinise the accounts of the organisations involved? Is an organisation that under-utilises wholesale markets actually less equipped to deal with a run on it by savers? What happens when the Nationwide is unprepared to take on the assets and liabilities of the next smaller building society to quietly hit the rocks?

Banks and building societies fund themselves differently. But they still make profits or losses at the end of the day. Doesn't matter if it's for the benefit of shareholders or members.

Both can fail and the days of the building societies being able to mop up the mess made by a smaller society are numbered - indeed they may already have passed. Nationwide can only choose to screw its own balance sheet so far.

Apologies if my original post was a bit 'off' - not intended - but from a security of deposit point of view I'd rather be in a big bank than a small building society. Even after the events of the last few days.

EdInvestor

The best coverage of building societies by far is in the Financial Mail on Sunday. Articles on www.thisismoney.co.uk

IMHO banks are safer than Bsocs because they have shareholders who can be asked for money to recapitalise if they have problems. Bsocs and other mutuals have no external sources of capital and end up having to be bailed out - or docking members funds, as at Equitable Life - when they run into trouble.

There is little difference in the business models re funding these days between the banks and bsocs.

baby_boomer

moonrakerz wrote: »

The banks have shown a total inability to do this unless they think they can pick their pound of flesh or two off the corpse of the failed bank.

And you think Nationwide won't do this to the Derbyshire :rotfl:

Earlier you quoted the funding ratio of the Northern Rock in comparison to Nationwide. NR was unique in this respect, so it would be a mistake to draw too many conclusions from this about other banks. Nevertheless, liquidity is a problem in the banking industry at the moment. As one analyst put it, "The world has run out of capital" [although watch China take advantage of this situation over the next five years]

Britannia used to be the BS which drew most heavily from the wholesale funding markets and least from the retail (savings markets). It seems to have made an effort to rectify this, but I don't know how successful it has been.

moonrakerz

baby_boomer wrote: »

And you think Nationwide won't do this to the Derbyshire :rotfl:

Earlier you quoted the funding ratio of the Northern Rock in comparison to Nationwide. NR was unique in this respect, so it would be a mistake to draw too many conclusions from this about other banks. Nevertheless, liquidity is a problem in the banking industry at the moment. As one analyst put it, "The world has run out of capital" [although watch China take advantage of this situation over the next five years]

Britannia used to be the BS which drew most heavily from the wholesale funding markets and least from the retail (savings markets). It seems to have made an effort to rectify this, but I don't know how successful it has been.

There seems to be "selective recall" on this subject !

Nationwide took on Chesghire & Derbyshire AND all their debts - none of the banks would touch Northern Rock unless the taxpayer underwrote any losses !

As I have already stated (several times) the banks were running on twice as much borrowed money as the Building Societies. Northern Rock was NOT unique in this respect - do a little research - start with the Bradford & Bingley !

You are totally correct when you say:- "Nevertheless, liquidity is a problem in the banking industry at the moment"
That is why Building Societies are a better bet - because they are not banks !