First Active shareholders must be wondering whether they would have been better off if their publicly-quoted bank had remained a mutual building society. Before the flotation the then managing director, Mr John Smyth, promised members of the mutual society that they would not lose out by converting into a publicly-quoted bank. He rejected any argument that as a publicly-quoted bank, pressure to increase profits and dividend payments to shareholders every year would lead to higher mortgage costs and lower returns on savings. But now it looks as if the former members may lose out in more ways then one. After watching the value of their shares drop sharply, acting chief executive John O'Callaghan hinted last week that the bank could switch out of some of its less profitable products and services. A review is ongoing - under pressure will be current accounts and credit cards and even maintaining high transaction low volume deposit accounts in a low interest rate environment.
Could First Active abandon these type of products and still call itself a retail bank? Abandoning some types of deposit account would affect a large number of small depositors, while cutting out current accounts and credit cards would significantly reduce the services the bank is offering its customers. While Current Account has sympathy with the bank's need to cut costs and understands that its current account and credit card services are high-cost operations because the bank is not a clearing bank, most former building society members would probably see them as basic financial services they would expect from their bank. As well as losing out on the product front, First Active shareholders have lost out on the share price issue. Floated at #2.86 (£2.25), about 220,000 First National members - depositors and mortgage holders - got 450 "free" shares each worth #1,287. That block of shares at #2.55 per share is now worth just #1,147.5.
Despite falling share prices in October 1998, First Active stuck to its plans to float the company. Demutualisation and flotation was required to expand organically and by acquisition and to provide its customers with a range of competitively priced products, members were told. But no expansion has taken place in the 18 months since flotation - contraction is more the order of the day with job cuts and branch closures.
Former First National members are getting a raw deal and are entitled to be angry with the management of their company. The question now is how much longer can First Active remain an independent player in a competitive and consolidating market.
