Risky spotting game starts

THE sheer size of the Cheltenham & Gloucester payout, which gives stock market-like returns on a year's investment in a building society account, is likely to make 'spot the next one' a national game.

Indeed, a serious risk next year is that after completion its customers will rush off in droves to other societies thinking of giving up their mutual status to become banks.

There were fears yesterday that it could even be the death knell of the mutual building society, as others rush - under customer pressure - to find buyers or go public on the stock market, like Abbey National in 1986.

In fact, it will be much more complex than that.

Even if it decides to become a bank, Halifax, the giant of the industry, may well be too big a mouthful for anybody to swallow.

On the rule of thumb of the C&G valuation it would be worth nearly pounds 7bn. That is almost as much as NatWest. If Halifax becomes a bank, it will probably want to stay independent. While a hostile bid is theoretically possible, the legislation governing building societies makes it extremely difficult.

Halifax has never ruled out a switch to bank status but has kept it firmly on the back burner recently. A spokesman said the deal 'makes no difference to our stance on mutuality. You can judge Halifax's performance by our five-year results, which have been better than some banks over that period.'

Among the rest, a large number of small and medium-sized societies have already been taken over or are looking for partners.

Building societies such as Nationwide, the second largest, Bristol & West and Chelsea are among the less efficient but could still be attractive to a bank buying market share if the price is right.

Brian Pitman of Lloyds said there was no other society as attractive as C&G because of its focus on mortgages and savings, which kept costs low. That view may be sensible for clearing banks such as the TSB that have big insurance and cheque book operations already.

But for some potential purchasers wanting to set up in the UK from scratch - such as a European bank - societies such as Alliance & Leicester, with a wide range of businesses, might be much more attractive.

Banks themselves will rethink their strategies as a result of Lloyds' move, but they have already diverged sharply. Barclays, NatWest and Midland have decided to stay as full service international banks serving private and business customers. All have slimmed their branches and are concentrating on developing their investment banks, and may not want the complications of a building society takeover in the UK.

Like Lloyds, which has already bought control of the Abbey Life insurance group, TSB and Abbey National are focused much more on personal customers in the UK. Lloyds has now challenged both of them head-on in the mortgage market. Among the failed contenders for C&G's hand, TSB must be the most bitterly disappointed.