220,000 to share First National windfall

Up to 220,000 borrowers and savers at First National Building Society will qualify for free shares and cash next year, when the society converts to a public company. To qualify for the financial windfall, customers must have at least £100 in an investment share account for up to two years before its members formally approve the conversion, or have a mortgage balance of at least £500 at a certain specified date to be announced in the coming months. Mr John Smyth, group managing director, said that while he was as yet unable to give an exact date for the flotation on the Stock Exchange, it would happen "within the next 18 months", subject to approval by its members.

As with previous demutualisations both here and in Britain, only the society's existing members can benefit from the free share offer. Anyone hoping to cash-in on the flotation by opening an account at the building society now will be disappointed, as they will not qualify under the minimum two-year rule.

Existing members must meet certain conditions to qualify. Savers, for instance, should not let the balance in their investment share accounts dip below £100 before the conversion has been formally approved, while mortgage-holders should also watch that their borrowings don't fall to under £500, if they are to qualify for free shares. Eligible First National employees are also likely to get free shares.

When the Irish Permanent converted to a publicly-quoted company in 1994, 227,000 of its savers and borrowers each got 300 free shares while a further 100,000 saving members who did not qualify for free shares got a cash payment of 20 per cent of their balance on a specified date.

The value of the shares will depend on market conditions at the time of flotation. In the current market, First National would be valued at between £350 million and £400 million.

The society will have to decide on its allocation of free shares and cash to its members over the coming months and notify eligible members of their entitlement before they vote on the proposal. Eligible members will also be able to buy additional shares in the new public company, usually at a discounted price. These details will be made available nearer to the flotation, Mr Smyth said. He added that members' entitlements to free shares were likely to be linked to their eligibility to vote and to reflect the requirements of the 1989 Central Bank Act.

The announcement ends months of speculation about the future direction of First National. Mr Smyth confirmed yesterday that the board had formally decided to convert the society to a publicly-quoted bank and would be shortly applying to the Central Bank to change its status. First National would be writing to all of its members who were eligible to vote on the conversion resolution "as soon as a timetable and detailed plans for a flotation have been agreed with the Central Bank", he said.

The society will then hold an extraordinary general meeting of its members where they will consider and vote on the resolution to become a public company. While Mr Smyth refused to state when this meeting was likely to be called, it has been suggested that it will most likely take place early next year.

First National chairman, Prof Michael MacCormac stressed that the society was "very eager" that its members would support the proposals for conversion and flotation. "We believe that the benefits to our members will be substantial and tangible as the value of their stake in First National will be unlocked through conversion and flotation. Members will become shareholders and will participate in the group's future success," he said.

Prof MacCormac said that conversion and flotation, which would give the group a banking licence, would provide First National with the "most appropriate structure" for its future development and success. It would also allow the group to raise new equity funds on the stock market to support its future growth.