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Report On The Costs And Benefi - Research Paper

Report On The Costs And Benefi

REPORT ON THE COSTS & BENEFITS OF A BUILDING SOCIETY CONVERTING TO A PLC
At the beginning of this century there were more than 2000 building societies, fiercely independent mutual organisations, formed in the spirit of Victorian self help. There are now just 71. Some of these that have disappeared were terminating societies with a fixed wind up date. The last “terminating” society was the Fist Salisbury which wound up in 1980. Other societies have been swallowed up in take-overs or converted into banks in the great 1997 demutualisation.
This assignment will discuss this trend with particular reference to the potential costs and benefits in the short and long term. This ...

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property
This means that Building Societies are limited in their participation in the more risky, but more rewarding unsecured lending. At the moment, Societies can make unsecured personal loans up to a limit of Ł15,000 per customer, whereas there is no ceiling for Banks. Building Societies with less than Ł100m of assets are not permitted to make unsecured loans.

2) No more than 50% of funds may be raised on the wholesale markets
This limit was previously 40% before the revised 1997 Building Societies Act.
Building societies have eagerly taken the opportunity to raise money in the wholesale markets, which have frequently proved to be the cheapest source of wholesale funds (Wholesale funds are large deposits placed by companies and financial institutions, bearing an interest rate in line with the market rate rather than base rates). They have used these funds to even out any shortfall in the inflow of retail funds to meet the mortgage demand.

Banks ...

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Building Societies are limited in raising capital. Until 1991 building societies could only raise capital by means of retained profits. Now larger societies, to increase capital, can issue Permanent Interest Bearing Shares (PIBS). This is in contrast to plc’s who are free to raise capital in the market by issuing shares and bonds if they plan to expand. An example of this is Barclays 1987 rights issue to raise Ł921m to finance “growth”.

Building societies cannot in general engage in take-overs of, or mergers with other types of financial institutions in order to expand their breadth of operations, and retain their mutual status. Banks have this freedom and ...

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PAPER DETAILS

Added: 4/12/2005 10:56:14 AM
Category: Miscellaneous
Type: Premium Paper
Words: 2590
Pages: 10

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