Does the re-mutualisation of Northern Rock make sense?

Gavin Oldham, chief executive of The Share Centre gives his view on the possible re-mutualisation of Northern Rock.

"Does the re-mutualisation of Northern Rock make sense? I believe not. The problem with the original demutualisation process was not in the flotation of their shares, but with inadequate regulation and too much institutional focus.

"The current travails of UK building societies demonstrate how difficult it is for mutual organisations to raise capital, an essential part of the new banking regime. Also, the UK government would find it very hard to repay the billions of pounds provided by the UK taxpayers under the Labour Party's plans.

"A ‘contradiction in terms' would be a good way to describe this manifesto extract: "As one option for the disposal of Northern Rock, we will encourage a mutual solution, while ensuring that the sale generates maximum value for money for the taxpayer."

"The use of the word ‘sale' implies a new owner, but mutual organisations are owned by their members - customers. Are they suggesting that depositors and borrowers are required by law to buy back their mutual status, with no subsequent ability to sell their stake into the market?

"I believe the best way forward would be to float the shares of Northern Rock Mark II back onto the stock market, with at least half the shares going to personal investors. That way, anyone who wants to subscribe for a stake in their future can do so confident in the knowledge that they can exit when they want to. The bank will be able to raise fresh money, the taxpayer will be repaid, and the regulators can ensure that the bank sticks to its retail bank knitting."

The opinions expressed in this statement are the personal views of Gavin Oldham. These views are not necessarily shared by The Share Centre.