A decade on from the “carpetbagging” gold rush of the 1990s, speculation is growing that consolidation among building societies could trigger a new round of windfall payments. And the good news for savers is that it’s not too late to share in any payouts.

Recent mergers between the Lambeth and Portman and the Leeds and Mercantile building societies have paid bonuses to members. Imminent mergers between the Portman and Nationwide and Newcastle and Universal are also due to pay out. This has encouraged a new generation of carpetbaggers to open accounts in the hope of obtaining further windfalls.

In most cases, new members are eligible for bonuses because the “charitable assignment clauses” that were introduced in the 1990s to thwart carpetbaggers apply only to windfalls resulting from demutualisation and not to mergers with other mutual societies.

With more than 60 small building societies in a sector that is struggling under the weight of regulation and intense competition, leading industry figures are predicting that many more will have to merge, which could lead to a bonanza of windfall payments for members.

Mike Lazenby, the chief executive of Kent Reliance, the UK’s fastest-growing building society, says: “At the moment there are too many building societies for the size of the market. There is no longer any fun in lending: costs are up and margins are down. Unless you are super- efficient you simply cannot make money.”

This analysis is borne out by recent research by KPMG. The consultancy’s annual building societies database highlights the growing gap between successful societies that are experiencing strong growth and falling costs and weaker societies that are struggling with low growth and poor cost control.

Simon Walker, a partner at KPMG, says: “With the lending and savings market set to become more difficult, the gap between societies seems set to grow and pressure on the boards of those weaker performers will rise.”

The worst performers include the Barnsley, Ipswich and Marsden building societies. If any of the weaker institutions are taken over by better-performing rivals, the average payouts are unlikely to be more than a couple of hundred pounds. But with most societies requiring low minimum deposits, the potential returns are great.

Savers who want to benefit from any potential mergers should move quickly because many building societies are changing their rules to deter such speculative investments. For example, in the past month the Dudley, Scottish and Shepshed building societies have all increased their minimum opening balances for non-locals to £1,000.

However, not all societies are taking such defensive action. In June Kent Reliance removed its charitable assignment clause to allow the possibility of a merger with a publicly listed company. The move reopened the debate about the benefits and drawbacks of mutuality.

Supporters of building societies argue that without shareholders to please, they can offer their members a better deal. But critics point out that few societies feature in the best-buy tables.

Indeed, some experts warn potential carpetbaggers not to deposit their savings with building societies because they do not offer competitive rates.

Stuart Glendinning, of moneysupermarket.com, the price comparison website, says: “Savers might well get lucky and receive a merger windfall but, to me, it is not a sensible strategy. The money could simply lie dormant for years, receiving only a pitiful rate of interest.”

CASE STUDY: King of carpetbaggers

James Spencer, a retired lecturer from Dundee, has been an avid carpetbagger since 1995.

“I profited from the recent merger between the Portman and Lambeth and I am due to receive money from the Newcastle and Universal and Portman and Nationwide mergers,” he says.

“Unfortunately, I missed out on the Leeds and Mercantile deal, but I am a member of 51 of the remaining 62 building societies, so I expect to do well from the latest round of consolidations.”

Since 1995 Mr Spencer, pictured with some of his passbooks, has profited by almost £30,000 from various windfalls, although this does include capital growth on shares he has kept. “My Northern Rock shares are worth £9,000 from an initial deposit of £100,” he says.

Most recently he joined the Tipton & Coseley. “It has a 99-year charity clause, but I see the society as a takeover target,” he says.







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