Preaching to the converted

WHEN Bradford & Bingley recanted its mutual creed and became the last big building society to float, few would have predicted that the shares would become the best performing of the 'converted' societies of the last five years.

Strangely enough they have, outperforming the market by 100% up to last night's fall, on first-half results that suggest tough going. The outperformance is partly because markets have slumped, but the shares' rise from 244p to 324 1/2p has surprised the doubters. Talk of a bid from Barclays at £4 helped, but hopes have dimmed.

Chief executive Christopher Rodrigues is a hive of energy. He has moved the strategy goalposts around, repositioning what was a regional mortgage lender as an independent financial adviser, helped by his purchase of John Charcol group.

The trouble is that the traditional loan book may melt down faster than the advice business can grow. It is growing, but still earns only one-eighth of group profits. These edged ahead 5%, but if you look hard at the sums the shine rubs off. A long string of managerial departures is also worrying.

Converts often have to try harder in their new faith. The five building society converters have had mixed fortunes. Halifax pulled off a huge merger with Bank of Scotland, but spent heavily on internet banking, where the jury is still out. Northern Rock kept its costs low and prospered. Woolwich was swallowed by Barclays. Alliance & Leicester almost merged with Bank of Ireland, changed its management, and still looks a bid candidate. The famous five are down to four, and could one day shrink to three or two.

Bradford & Bingley did well to recruit Rod Kent as its new chairman. He built Close Brothers into a highly profitable merchant bank, still worth £750m despite the market shake-out. His relationship with the strong-minded Rodrigues will be something to watch. The best service the dynamic duo might do for B&B's one million investors (including me) is to deliver a buyer, preferably before too long.

Bank thinks of cuts

THE Bank of England's deliberations have moved from raising interest rates to cutting them. The minutes of the Bank's Monetary Policy Committee meeting which ended on 1 August confirm that with world recovery looking increasingly fragile and stock markets nosediving, 'there were several factors now suggesting that a reduction might be warranted'.

In the event the MPC decided to sit tight at 4% with a unanimous vote, signalling that even superhawk Mervyn King had descended from his roost to join the doves, giving up his lone battle for higher rates.

One reason for not cutting was the housing boom. The minutes acknowledge that a cut would stoke it up further, 'increasing the risk of a sharp correction later'. On balance the MPC is probably right. Two weeks ago the figures showed inflation down to 1.5%; now it is 2%. And the UK economy, though fragile, still seemed to be growing.

The latest employment figures, which the MPC would not have seen, bear this out. The total of people in work has climbed to 28.55m, the highest since the new count began in 1979. Unemployment fell slightly, rather than rising slightly as expected.

After winding its way in a leisurely fashion past an array of economic signals and indicators, the committee noted the huge gap in inflation between goods prices, which have been falling, and services, which are steaming ahead. This is the way we live now, especiallysince many of the goods, such as clothing, are made in cheaper countries.

The biggest danger to inflation may come from the unexpected direction of 11 Downing Street. There are growing signs that the strong rise in public spending is pushing up pay claims.

This is not yet coming through fully in earnings, which are up 3.6% in the state sector year on year against 4% in the private sector. Gordon Brown is famed for keeping a tight grip, but once the public spending engine is stoked up, it can be very hard to slow.

The job figures, like so many others these days, are not quite so impressive once you look closely. Another 100,000 manufacturing jobs have vanished in six months. The replacements are often part-time public service posts.

Hours worked actually fell - by 1.5% in a year for those in full time work. The casualisation of the workforce continues. But at least total jobs are holding up, even if more of them are in fast-food restaurants.