Demutualisation of Building Societies

Demutualisation is the process by which a customer-owned mutual organisation (mutual) or co-operative changes legal form to a joint stock company. As part of the process, members usually receive a windfall payout, in the form of a cash payment, shares in the successor company, or a mixture of both.

Whilst a mutual organisation raises capital from its customer members in order to provide services to them (e.g. members' savings enable the provision of mortgages to other members), redistributing some profits to its members, a joint stock company raises capital from its shareholders and other financial sources in order to provide services to its customers, with profits or assets distributed to equity or debt investors.

After the deregulation of the Building Societies Act 1986, many of the larger building societies in the UK converted into joint stock banking companies. By 1997, many societies had become targets of speculative "carpetbaggers", who joined to vote for demutualisation and to gain the member windfall in cash or shares of stock. To combat this, some societies that valued mutuality, such as Nationwide Building Society, require new members to assign any compensation from demutualization to charity.

In all, 10 building societies of the United Kingdom demutualised between 1989 and 2000, either becoming a bank or being acquired by a larger bank (shown in the table below). By 2008, every building society that floated on the stock market has either been sold to a conventional bank, or been nationalised.