Central flaw in mutual deal

DURING two decades marred by banking scandals, Nationwide has been the honourable exception. Its commitment to uphold mutual values has been impressive.

Which is why the fact that there is no member vote on its £2.9bn takeover of Virgin Money seems so incongruous and out of character.

The deal in itself looks to have merit: it will push Nationwide up the banking scale and give it clout against the Big Four – Barclays, NatWest, HSBC and Lloyds.

There is always a risk that deals will be a disaster, as happened with the last big mutual merger between Co-op Bank and Britannia Building Society.

This danger is reduced by the fact that Nationwide chief executive Debbie Crosbie is a former senior Virgin Money executive who knows the business well. But there is an uneasy feel about the way that the principles of mutual democracy appear to have been flouted. The rationale for this great disenfranchisement – that staging a vote for 16m members would take too long and possibly open the door for a rival bidder – does not fully satisfy objectors.

Nationwide argues that the Takeover Panel would not allow it to introduce a member vote as a condition of the deal, and that it would not have been acceptable to the Virgin Money board.

But in an age of instant digital communication, a virtual meeting with a vote online should be feasible.

It is highly unusual for a mutual to embark on a takeover of this size and the Takeover Code is not geared up for it. But the Takeover Panel should be capable of flexibility.

Nationwide and its advisers did not cook up this bid overnight. One wonders whether it could have found a way to permit a member vote as part of the preparations, had it a mind to do so.

Dissident members have organised a petition with more than 500 signatures. This is in theory enough to requisition a meeting – though to do that, signatories would have to pay £50 each and then verify they are Nationwide members.

Even if they did manage to force a vote, it would not be binding.

Crosbie is a very well respected executive. But this is a transforming deal which inevitably comes with risks, one of which centres around Crosbie herself.

GIVEN the integration would take five years or more to complete, she might be tempted away while the merger is still in midstream. Nationwide’s status as the champion of mutuality goes back to the 1990s, when it held out against a wave of carpet-bagging. It decided to remain as a mutual instead of floating on the stock market alongside its rivals Halifax, Northern Rock, Alliance & Leicester and Bradford & Bingley.

All of those former building societies came to ruin in the credit crisis – unlike Nationwide which acquitted itself very decently.

As a result, it is the undisputed standard bearer for the mutual sector. The Virgin Money deal could result in an even bigger, stronger mutual leader.

At a time when mutuality is under threat and wrongly disparaged as an antiquated business model, that would be a good thing.

Nationwide is not legally obliged to give members a say. It is true that offering a vote would not be straightforward.

It is also true that the society’s own polling suggests that the vast majority of members support the deal.

Even so, this apparent inability to honour mutual democracy is a contradiction and a great pity.