COMMENT:No help forthe mutuals

Let no-one be fooled by the sudden public love-in between Abbey National and National & Provincial. Efforts to rewrite events by calling it a merger cannot disguise the shock this hostile takeover has provoked throughout the building society movement. It is too early to be writing a final obituary for the mutuals that have served small savers so well for more than 100 years. But there can be no doubt that the heads of most of Britain's remaining mutuals need urgently to come up with a convincing raison d'etre and a coherent strategy for the future.

First came the Abbey's conversion to a bank. Then the Lloyds Bank takeover of Cheltenham & Gloucester. The Halifax/Leeds merger was an equally seismic event, making it readily apparent to building society members just how much money can be unlocked by converting to plc status.

Even the most ardent defender of mutuality now admits that pressure from members to realise the cash value in societies will be hard to resist.

Now the earth has moved again. Abbey National has smashed the complacent belief that no-one could make a hostile bid for a society and get away with it. The prospect of cash in hand is just too tempting for N&P members. Building societies that want to remain mutual will have to find other ways of delivering the dollop of jam today that conversion or takeover delivers. Competitive long-term interest rates are no longer good enough. Loyalty bonuses, even the payment of dividends, the very essence of the joint stock company, are among proposals that have to be explored if this increasingly endangered species is to survive.

The problem is that once building societies start paying dividends, whatever they may call them, they lose one of their big cost advantages over banks.

Building societies also face the special problem of deciding whether mutuality offers the scope and flexibility needed to compete in a market place where everyone - banks, insurance companies, even specialist fund management groups - aspire to be general financial services conglomerates.

Nor can those wanting to cling to the mutual tradition expect much help from the Government. The recently announced package of measures for deregulating the societies was limp and half-hearted.

More importantly for a government desperate to improve its position in the polls, the wave of takeovers and conversions so far announced already promises cash handouts worth some pounds 5bn to pounds 6bn - a considerably greater "feel-good" boost to the economy than Kenneth Clarke can possibly hope to deliver by way of tax cuts in his next Budget.