Building Society Windfall Signaway

Biggles14

Several People have commented on ways to avoid giving up your right to a bonus in the event that your Society should merge or be taken over. (See Portman/Nationwide Merger threads)

Why did the FSA, or whatever body it is that controls Building Societies, allow the ‘Windfall Sign away Agreement’ to happen in the first place?.

By agreeing that any windfall should go to Charity instead of the Member doesn’t reduce the amount that the Society pays out or increase the amount longer term Members might get, it merely deprives new Members of the bonus and the freedom to do with it whatever he/she fancies rather than be dictated to by the Society.

It also traps Members into a Society that they have been with for years because they know that if they move accounts to a better mortgage or savings account provider they will lose out in the event that their new Society should convert or merge.

Societies should not ask new Members to sign away any part of their Membership Rights. All Members should be treated equally. Otherwise they are not full Members of the Society.

Addendum 22.10.07.

In some ways I can understand the reaction to my comments regarding ‘signaway’ rights.
Whilst some agree with me, some are concerned that if their Society converts to a bank or are taken over, competition will be compromised. But just as Supermarkets have to compete for business with one another so will all the resulting Banks. Nothing changes until all the Banks merge into one (Now there’s a thought, I think they call this Nationalisation). It’s not going to happen is it?
Maybe, back in nineteen hundred and freezing to death, Building Societies were run for the benefit of their Members. But I believe those days are long gone.
When it suits them, a Societies Board will make a decision to convert or merge after consultation with all their institutional investors. These are the real money boys (sorry, or girls), Pension Fund Managers, Union Funds, Stockbrokers, and other Financial Institutions will make the decision and then we will be asked to vote, but their share of the vote is far bigger than ours so the resolution will be passed, and their share of the resulting bonuses will be proportional to their massive stake. I wonder if these Institutions are required to sign away their rights????.

Aegis

If nothing else it's an excellent tactic to ensure that mutual societies remain mutual. Members are less likely to vote for demutualisation if they'll get nothing out of it.

bristolleedsfan

Biggles14 wrote: »

Several People have commented on ways to avoid giving up your right to a bonus in the event that your Society should merge or be taken over. (See Portman/Nationwide Merger threads)

Why did the FSA, or whatever body it is that controls Building Societies, allow the ‘Windfall Sign away Agreement’ to happen in the first place?.

By agreeing that any windfall should go to Charity instead of the Member doesn’t reduce the amount that the Society pays out or increase the amount longer term Members might get, it merely deprives new Members of the bonus and the freedom to do with it whatever he/she fancies rather than be dictated to by the Society.

It also traps Members into a Society that they have been with for years because they know that if they move accounts to a better mortgage or savings account provider they will lose out in the event that their new Society should convert or merge.

Societies should not ask new Members to sign away any part of their Membership Rights. All Members should be treated equally. Otherwise they are not full Members of the Society.

Since the "windfall signaways" were introduced, none have been enforced where a merger has taken place between two building societies.

Building Societies cited the reason for the "signaway" introduction was to avoid disruption to their business by queues forming to open accounts everytime their was press or otherwise speculation regarding a building society.

It is apparent that the only reason the "signaways" were introduced ( firstly by Nationwide BS who had previously faced a members conversion challenge resolution. ( other building societies also faced members trying to put such resolutions to the board) was a protect itself excercise by the Building Soviety Boards who knew that by introducing such signaways such challenges could not happen in the future and to deter a hostile bid by a Bank or PLC as such challenges/hostile bids would have little chance of success with a large percentage of members "signed away" from takeover/conversion payments

Someone might say well why then did smaller Building Societies who have no chance of ever converting to PLC status also introduce "signaways", comes back to the fact that no signaways have ever been enforced, once upon a time Building Societies acted as a cartel ie they held monthly meetings to decide its ( all the building societies) morgage rate, some boards clearly remember those days and followed Nationwide BS "signaway" introduction like sheep.

I would imagine FSA would support any attempts Building Societies make to stop speculators disrupting their business.

As for savers being trapped, its their choice whether to keep a minimum of 100.00 in a building society account in the hope of a future merger payment.

lolly5648

I have been a Portman member since 1997 and have just bought a Nationwide loyalty bond. I was told that my years with Portman don't count for anything and I had to sign away my rights to any merger windfall.

Anyone else heard this?

baby_boomer

That could be wrong - unless you became a Nationwide member between 1999 & the merger with Portman, in which case it's correct.

With regard to the OP's points - the FSA is effectively an arm of the government and Gordon Brown is a patron of both the Building Societies Association and Mutuo, the mutuals chief pressure group.

Gordon is happier for BS mergers to take place because windfalls on these are taxed at your top rate of tax, whereas windfalls when conversion takes place are usually tax free unless you have used up your capital gains allowance for that year.

Nick_C

I have recently become a member of Yorkshire, Nationwide, Scarborough, and Coventry BSs. I've been delighted in each case to sign away any right to windfall profits, because I want these societies to stay as mutuals, working for their account holders (members), not just making vast profits for their share holders.

Incidentally, in each case I've opened accounts with these organisations because they offer the best products available - better products than the profit making plcs that they are in competition with.

So thank god for windfall signaways; they have preserved a small but important core of mutuals, who influence the markets and stop the plcs doing what the hell they like, and they stop selfish carpetbaggers - who care only about short term gain - from trying to steal assets built over by members over decades or centuries!

Welliesorter

As others have said, the rule is to discourage 'carpetbaggers': people who open accounts and then vote in favour of demutualisation only for the sake of getting the bonus. A large number of these could be very disruptive to a building society's business and definitely not in the interest of bona fide members.

It seems amazing to me that, after the past few weeks, anyone could still think that building society demutalisation is a good thing. One reason that Nationwide is unlikely to go the same way as Northern Rock is that the majority of the money that it lends still comes from its depositors rather than being borrowed on the money markets.

Nationwide has done a number of things to differentiate itself from the banks. It led the way in maintaining free cash machines, which prevented the big banks all clubbing together to charge each other's customers. Also, I wonder how long free overseas transactions would last if Nationwide were to become a bank.

baby_boomer

Nick_C wrote: »

selfish carpetbaggers - who care only about short term gain - try to steal assets built over by members over decades or centuries!

I couldn't agree more that we need to keep an eye on mutual directors.

Why, pray, did they successfully lobby earlier this year to be allowed to copy Northern Rock and are on the way to achieving legislation that will allow them to borrow more funds in the wholesale market like NR?

Milarky

lolly5648 wrote: »

I have been a Portman member since 1997 and have just bought a Nationwide loyalty bond. I was told that my years with Portman don't count for anything and I had to sign away my rights to any merger windfall.

Anyone else heard this?

That depends precisely on when the Portman signaway clause was introduced.

The practical issue of signaways though are that

- they do not apply specifically to mergers only floatations or takeovers resulting in the loss of 'mutual' status (eg Barclays wants to buy you out)

- even where they do apply, 75 percent of all members must vote for change of status. Where signaways are a significant portion of the membership the Board has to ask itself the 'Dirty Harry' question or else (as has happened in the case of Standard Life only last year) they just have to give in to the 'carpetbaggers' and scrap the signaway before asking members to vote for change.

BLF has it right. These could stop hostile takeovers (assuming there are enough carpetbaggers to make a difference, ironically)

Best advice: everyone should open an account with the minimum amount in as many building societies as possible - as a contingency. Several building societies have high minimum investments for 'new' customers just in order to prevent this. Other use 'area only' restrictions. But that still leaves about 40 out of 60 societies which are open without too much trouble to the average saver.

On the point raised by the OP about how additional members affect payouts to existing members it's clear that they do. If there are X members and Y signaway members then that's X /(X+Y) shares to existing eligible members. But if Z new members join that's X /(X+Y+Z) shares.. ie even more would go to charity. Thus, anyone who 'carpetbags' can say that they are simply doing it to boost the eventual payout to charities. The fact is that signaways can't apply in practice - and that the more charities stand to get the less the they acutally will get.

Cazzkins

lolly5648 wrote: »

I have been a Portman member since 1997 and have just bought a Nationwide loyalty bond. I was told that my years with Portman don't count for anything and I had to sign away my rights to any merger windfall.

Anyone else heard this?

This is certainly not true, assuming you were not already a post-1997 member of Nationwide. Any rights you had gained by your Portman membership will have ported across to your merged membership with Nationwide, provided you had not closed your account prior to opening the new Nationwide bond. The Portman charitable assignment lasted 5 years from when you opened your account there, meaning that had Portman demutalised anytime since 2002, you would have received a windfall. This right has now carried across to Nationwide. Interestingly, if you had been a post-1997 member of Nationwide your Portman rights would not override any charitable assignment already in place with Nationwide; hence if you had full membership rights with Portman it would have served you well to close any existing Nationwide accounts prior to the merger with Portman to ensure that you benefitted fully should Nationwide demutualise in the future!
(A point not highlighted in all the merger documentation of course!)

bristolleedsfan

Nick_C wrote: »

I have recently become a member of Yorkshire, Nationwide, Scarborough, and Coventry BSs. I've been delighted in each case to sign away any right to windfall profits, because I want these societies to stay as mutuals, working for their account holders (members), not just making vast profits for their share holders.

Incidentally, in each case I've opened accounts with these organisations because they offer the best products available - better products than the profit making plcs that they are in competition with.

So thank god for windfall signaways; they have preserved a small but important core of mutuals, who influence the markets and stop the plcs doing what the hell they like, and they stop selfish carpetbaggers - who care only about short term gain - from trying to steal assets built over by members over decades or centuries!

as u appear to be a new member of scarborough BS my advice would be to keep a keen eye on the interest rate, scarborough have had some form of apparent addiction ( over at least a decade) to keep launching new accounts to hit the best buy tables and letting previous "best buy accounts" become mediocre. ( every time Chelsea BS launch a new savings account Scarborough BS seem to launch a new savings account as well. :rotfl: )

http://www.scarboroughbs.co.uk/media/closedissueaccounts.pdf

Coventry BS historically have never managed to maintain a best buy rate over the longer term ( 2/3 years or so) either. ( ive given up keep moving from account to account within coventry am now settling for a very poor 5.4% netsave rate. ( another building society that keep launching new accounts to hit best buy table and attract funds whilst letting previous best buy accounts "lose interest".

re Yorkshire BS savings accounts, i always let Mr Wolfe comment on savings rates over longer period of time at Yorkshire BS. :cool:

i used to be impressed how building societies spoke of both mutuality and "local interests", time after time a building society board chooses to recommend merging with another building society which results in reduced competition within the building society movement and often the loss of local interests and local jobs.

building societys may not use profits to pay shareholders, they use a proportion of their profits to increase its asset size ( something plcs dont need to do with its profits)

can someone enlighten me as to why City Centre Building Society Branches are so large, im thinking most particularly of leeds, brittania, chelsea, when in reality all they do is act as a human cashpoint and hold some person to person interviews. :rolleyes: