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BSA and FSA split on Pibs

The Building Societies Association and the FSA are at loggerheads over the mutuals’ use of permanent interest-bearing shares to meet the regulator’s proposed capital requirements.

Speaking at the BSA annual conference in Manchester last week, BSA chairman Graham Beale said the trade body has a “strong legal opinion” that Pibs could be used to meet capital requirements but he says the FSA has refused to accept the use of the shares.

The BSA argues that the measures go against the concept of mutual societies, as it says the FSA insists firms have an “uncapped distribution mechanism”, meaning they have to offer plc-type shares paying a dividend.

BSA head of mortgage policy Paul Broadhead says building societies and PLCs should be seen as different entities because they have different agendas and that implementing the proposals goes against the concept of mutuality.

He says: “If you look at permanent interest-bearing shares, they are all fixed interest. That is what the investor buys and they know exactly what they are going to get back.

“What an uncapped distribution mechanism means essentially is a plc share you are going to pay a dividend on. If you are a mutual, it goes right across mutuality, meaning you have shareholders who want to drive out maximum profits.

“At the moment, the mutuals’ retained profits and the 30 per cent business cost they save by not paying dividends to shareholders get pumped back into the business for the benefit of its members.

“We need to realise that plcs and mutuals are different entities. Do not just try and shoehorn mutuals into a plc straitjacket and say this is the only acceptable model.”

The FSA refused to comment on the matter until the proposals have been finalised.

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