Let's hear it for sleepy building societies

If a bank said a key part of its business was down 80% then I guarantee you there’d be uproar.
The share price would get hammered and, in all probability, there’d be the ritual game of musical chairs in the boardroom so shareholders could see they weren’t the only people paying a price.
Yet that’s exactly what the Mansfield Building Society has confessed to in its revelation that mortgage volumes that were running at £5-6 million a month have now dropped to £1-2 million.
And its chief executive, Nigel Quinton, isn’t in the least bit ashamed of it. Indeed, he says it’s intentional
May be he has a point. One of the silver linings of the current financial crisis has been the re-emergence of play-safe building societies as a force for good in financial services.
Building societies are, remember, fundamentally different from banks. While banks are (or have been) Stock Exchange monsters chasing massive profits in the name of executive bonuses and hungry shareholders, building societies are owned by their savers and borrowers.
They are meant to chalk up surpluses from efficient operations rather than rolling-in-it profits – a key distinction that alludes to the Victorian origins of institutions founded on the principle that both the building society and its members should benefit mutually from its activities.
Those activities would be two simple things: encouraging people to put money aside and save, and selectively using those savings to lend to people so they could buy a home and pay the money back over time.
This is why Nigel Quinton at the Mansfield and Ian Rowling, his opposite number at the larger Nottingham building society, may have wry smiles on their faces right now.
They have lived through a 15-year period when building societies were pilloried for being sleepy, out-dated businesses that had neither the size nor the dynamism to give customers the innovative, cut-price deals that financial fashion (and multi-million advertising budgets) said they wanted.
This era saw carpetbaggers burst into building society AGMs and spread a breathless message about the windfall profits members could make if only they voted to de-mutualise and go on to the Stock Exchange.
Loads of people took the money. Loads of long-established building societies ended up on the Stock Exchange. That’s the point at which it all changed – the point at which institutions originally set up as models of prudent financial practice began selling you your money in a big way.
And now? Every single one of them is a wreck, destroyed by sallies into arcane areas of property lending which even High Street banks – which have much broader-based businesses – have been badly burned by.
The guiding principle of building societies was to grow assets while minimising risk. This is a principle which we now know some of them abandoned.
And it wasn’t just the Northern Rocks and Bradford & Bingleys of this world.
That the reassuring noises from both Quinton and Rowling came only a few days after the Derbyshire building society sent out letters detailing its ‘merger’ with the Nationwide may strike some as more than a little ironic.
Why? The Derbyshire will go down in history as the building society which refused to become a bank but still managed to get burnt like one.
That’s because it departed from simple saving and lending products for ordinary people and took on sub-prime loans and loans to people buying commercial property.
Both hit the skids. So did the Derbyshire, left dangerously exposed by mounting losses on bad loans as the credit crunch deepened.
The end result is that the members of the Derbyshire – its savers and borrowers – will have no say in the process by which the society they own becomes a subsidiary of a financial institution 25 times bigger, the Nationwide.
The Derbyshire’s executives will leave with substantial pay-offs, Britain’s ninth biggest building society will disappear from the market as an independent competitive force.
You wouldn’t call it a happy ending. But while the banks stagger about in a Stock Exchange daze, there are still some mutuals quietly getting on with business.