Personal Finance: `As we have seen in the demutualisation stakes, money talks. The carpetbaggers could do better yet'

NO ONE is so vehemently anti-smoking as an ex-smoker. The same could be said for former champions of mutuality, although I wouldn't want to stretch the comparison too far between the management of the Bradford & Bingley and smoking.

The point is, up until the B&B's members voted to convert to plc status last April, the society's management, under chief executive Christopher Rodrigues, were vociferous, adamant champions of staying mutual. Ditching mutual status to turn the B&B into a bank would be tantamount to selling a priceless family heirloom for a mess of potage, said Rodrigues and co.

But once the vote to convert came through, the management did a 180- degree turn. Out went more than 100 years of history, in came the highly paid City advisers to put together a stockmarket flotation. Last week the B&B published the outlines of its plans to pay windfalls to members when it converts to plc status next year.

The plan is for a "flat" share distribution scheme, where borrowers and savers will all get the same amount of shares in the new bank, regardless of the size of their respective mortgages and accounts.

At first sight this may seem unfair. This flat distribution is in stark contrast to the payouts in the Halifax and Woolwich conversions, where savers with larger amounts in their accounts got proportionately more than smaller savers.

The B&B plan will reward long-standing, loyal customers no better than the most recently joined carpetbaggers. But flat distributions are nothing new. The first society conversion, the Abbey National in 1989, featured a flat structure - everyone got pounds 180 regardless whether they had pounds 100 or pounds 1m. The conversion of Alliance & Leicester was also a flat payout.

From the management's view, such flat schemes are attractive. They are far simpler to administer than trying to calculate proportionate payments for millions of members. This makes the payout process far cheaper.

It also makes it far more likely that the B&B's membership will vote to approve the management's conversion plans next summer. If Mr Rodrigues wants to win his vote, he needs the support of as many members as possible. And among the UK's remaining building societies, 80 per cent of the members have under pounds 500 in their accounts.

In other words he's got to please the little guy. And with a flat distribution, everyone in the B&B will get about pounds 1,000 each. If they had decided to pay, say, 10 per cent of individual deposits, the legions of pounds 500 depositors would see a piffling pounds 50. Not much to vote for.

So by proposing a flat, non-proportional scheme, it seems the formerly pro-mutual management has now swung all the other way, and is doing everything it can to win the demutualisation vote.

My hunch is that this scheme will become academic. The B&B is costly to operate, and a predator bank could offer members a third more than last week's payout proposal. As we have seen in the demutualisation votes, money talks. The carpetbaggers could do better yet.

John Willcock is Personal Finance Editor of `The Independent'