Buying in early before a firm demutualises is the name of the game, writes Laura Slattery

Carpetbagging is a sport played by shrewd monitors of the comings and goings of mutual insurance companies and building societies, but it can be a long and frustrating game.

The basic skill involves becoming a member of the mutual company at an early stage, acquiring voting rights, then pushing or simply waiting for the company to demutualise, thus receiving a windfall of shares or cash when the company is sold or floated on a stock exchange.

Carpetbaggers of two target mutuals moved closer to their windfalls last week, as the Government confirmed its aim to enact legislation before the summer which will allow for the demutualisation of Irish Nationwide, and Standard Life said it would send demutalisation proposal documents and voting forms to eligible members by the end of April.

The 90,000 Irish members of the Scottish mutual insurer Standard Life are closer to their payments than the 120,000 qualifying members of Irish Nationwide, who must wait for the building society to design a conversion scheme and seek regulatory approval before they can approve it.

Irish Nationwide won't start this process until the Building Societies Bill has been published and passed. The Standard Life members must return their votes by post by May 28th. A special general meeting is due to take place on May 31st.

The company is encouraging members to vote in favour of demutualisation; it needs 75 per cent of eligible members to do so in order for it to seek court approval to demutualise. It will then seek a listing on the London Stock Exchange, possibly as early as July.

So how much money can Standard Life members expect to get their hands on?

First of all, the windfall will be in the form of shares. Some overseas members will receive cash instead of shares, but this does not apply to Irish members.

Exactly how many shares each member receives will depend on the type of policy they held as of March 30th, 2004, and the size of the investment and length of time they had held it as of that date.

To qualify, the investment must be held in Standard Life's with-profits funds and taken out before March 30th, 2004 - the day before the company announced it was in favour of demutualising.

If the with-profits policy matures on or after October 18th, 2005, but before the special general meeting takes place on May 31st, the member may still qualify for shares or cash, as Standard Life is proposing an amendment to its regulations that will allow this to happen. However, people whose policies have matured won't have voting rights.

Standard Life members who are in line for a windfall will be told how many shares they have been allocated and how much they are likely to be worth in a proposal pack that will be sent to them at the end of April.

A facility to cash in shares easily and cheaply is likely to be set up.

Analysts estimate that the average qualifying member will receive shares worth around £500-£1,000 (€720-€1,440) - not to be sniffed at perhaps, but a lot smaller than the £6,000 (€8,600) plus figure touted by carpetbaggers in 2000.

That conversion attempt was overwhelmingly defeated by members. In the meantime, however, the benefits of mutuality haven't been quite so clear.

With-profits, a type of life assurance product where the returns are smoothed over the term of the policy, took such a hammering during the stock market downturn at the start of the century that companies selling the products were forced to cut maturity payouts and bonus rates repeatedly.

Standard Life was no exception and in 2004 it was forced by the UK Financial Services Authority (FSA) to remove a so-called mutuality bonus from its with-profits projections as part of new "realistic balance sheet" reporting requirements.

The new rules prompted Standard Life to abandon its previous commitment to its mutual status and extol the virtues of demutalisation.

However, the value of the company has fallen significantly in the past six years.

Irish Nationwide carpetbaggers have had a more embittered fight for demutualisation.

Carpetbaggers at the building society, frustrated by the slowness of the process, have been irritated by the society's refusal to demutualise until takeover protection rules in the current building society legislation are removed. But the delays mean that people who joined Irish Nationwide in recent years in the hope of snatching a windfall may just make the cut - share accounts must be open for two years prior to a conversion resolution to be eligible for any windfall.

To qualify as a member, savers must hold a share account rather than an ordinary deposit account.

In the past it was possible to open a share account with voting rights for £100 (€127). However, the minimum required to open a share account has gradually increased over the years and has been €20,000 for some time.

Members should maintain the balance in their account at whatever the minimum requirement was at the time they opened their account in order to be eligible for a windfall. However, the exact criteria will depend on the details of the conversion resolution, which must be approved by the Irish Financial Services Regulatory Authority.

It is probably too late to open a share account now and still qualify, but anyone taking out a mortgage at Irish Nationwide is in with a very good chance.

Borrowing members only have to hold their loans on December 31st of the year before the vote is taken to be entitled to vote on a resolution to convert from mutual status.

When Irish Permanent and First National demutualised, this was also the rule used for securing a windfall.

Irish Nationwide members should also note that in the case of joint accounts, it is the first named person who will get the cash.

At around €15,000, the Irish Nationwide windfalls should prove substantially bigger than those from Standard Life, but there will still be capital gains tax (CGT) to pay, as carpetbaggers at Canada Life and First Active (the company that formed as a result of First National's demutualisation) know only too well. CGT is calculated at a rate of 20 per cent, meaning the liability on a €15,000 payout, as long as the personal tax-free allowance of €1,270 hasn't been used up, would be almost €2,750.

The demutualisation of Irish Nationwide and Standard Life will leave EBS Building Society as the last target for Irish carpetbaggers. However, EBS has repeatedly said that it will not abandon its mutual status.

Standard Life said much the same thing for years before the FSA's crackdown prompted a U-turn, but EBS's commitment could prove harder to shake.

The building societies legislation will allow for a change in its ownership, but it is more likely that it will seek to link up with another mutual company based outside Ireland than demutualise.

Carpetbaggers could become EBS members now in the hope of a future payout only for the building society to impose strict, retrospectively applying conditions as to who would get the spoils of demutualisation - thus removing its attraction for the very people who want it.