Co-op Study 1

The Trustee Savings Bank Give-Away

by Manfred Davidmann

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Trustee Savings Bank (TSB)
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When the Trustee Savings Bank was privatised, buyers received not only ownership of the bank but also the money they bought it with, about GBP 1 billion. This study describes what happened and discusses it.

It is one of a series of eight studies of co-operatives and mutual societies which were undertaken to determine causes of failure and reasons for success, to see how these enterprises were controlled and managed, to learn from the mistakes of others. What is taking place is fascinating and often unexpected (See 'Relevant Current and Associated Works').

The main report 'Co-operatives: Causes of Failure, Guidelines for Success' is based on these studies. Its conclusions and recommendations are entirely relevant and cover fundamental and practical problems of co-ops and mutual societies, of members, of direction, management and control (See 'Relevant Current and Associated Works').


The UK's Trustee Savings Banks had been collecting and looking after the working population's small savings for about 200 years. They were formed 'for the safe custody, and increase of small earnings belonging to the labouring and industrious classes'.

Trustees held the Bank 'upon Trust' for the depositors who in turn can appoint and remove trustees {TSB 01}. Until recently Trustees were forbidden to 'receive any emolument, beyond actual expenses for the purpose of the institution'. The early savings banks were unincorporated associations for the sole benefit of the depositors.

So the Trustee Savings Bank (TSB) was run entirely for the benefit of its depositors. When profits were earned they were allocated to the bank which earned them and in part to a mutual assistance fund. Bank reserves (including assets) were accumulated from deposited savings. But accumulated reserves were not allocated or distributed to depositors.

Active in banking, credit cards, unit trusts and insurance, with more than 1,600 branches in the UK, the TSB had a profit of GBP 77 million in 1982. {TSB 02}

In 1985, well known for friendly and effective service, the TSB had more branches than Barclays and was considered to be better managed than the big clearing banks. It had accumulated reserves of GBP 800 million, a lot of money in 1985.


The TSB was dedicated to serving the community and effectively competed with the big clearing banks by successfully attracting deposits.

TSB served its customers well but retained some of its profits instead of passing them on to its customers by more competitive interest rates. So its reserves accumulated, had become very substantial, were in effect serving the community.

Ownership of the bank and its reserves became important when a Conservative government decided to 'privatise' the bank and convert it into a shareholder-owned profit-maximising bank just like the commercial banks.

A 1973 report had stated that if the banks are to be considered as mutual organisations without shareholders the depositors are entitled to the full value of the bank. (TSB 03}

The TSBs were freed from competitive restrictions in 1976 {TSB 05}. The 1981 TSB Act in turn states that the TSB can accept deposits, accumulate the produce and
return the deposits and produce to the depositors after deducting any necessary expenses of management, but without deriving any benefit from the deposits or produce. {TSB 01}

The TSBs serve the community. Trustees are meant to ensure the TSBs are run for the benefit of their depositors and of the community, their assets being looked after by Trustees on behalf of the depositors.

But then the UK government decided to 'privatise' the TSBs, to sell them off, stating in the 1984 White Paper:
The TSBs do not belong to the Government. Nor do they belong to the trustees, to their employees or to their depositors. {TSB 05}

So the government is proceeding to sell the TSBs although it considers that they do not belong to the government, on the basis that the TSBs and their assets belong to nobody, that no one owns the bank.

The TSB's assets were to be transferred to a public limited company before flotation {TSB 01}. This is how Andrew Murray commented in the Financial Times:
As it considers that the TSB belongs to no one, the government apparently intends to appropriate the assets by Act of Parliament, fix the price, make the sale and return the payment with the goods. In other words, the existing assets would be a free gift to the purchasers of the shares. {TSB 06}

The 1985 Act then took away the powers of the depositors. The bank is to be run first and foremost for its shareholders. {TSB 01}

It did not seem to make sense to depositors and the matter was fought out in the courts in Scotland, then in England and Wales, and finally decided in the highest UK court, the House of Lords.

Their reasoning was interesting, their arguments appeared almost unreal, the conclusion was unexpected.


Scottish depositors argued in a Scottish court that it was the depositors who were the owners of the bank and that the planned Stock Exchange floatation should be stopped. {TSB 07}. They said:

If the TSB had been incorporated, they would have been 'members' with clear ownership rights.

So they argued that it was because the bank was an unincorporated association that they were depositors instead of members and that the flotation of the TSB would deprive the depositors of their right of ownership of the bank.

The Scottish court ruled that the assets of TSB Scotland belonged to its depositors.

But in a Scottish appeal court three judges overturned the decision that the assets of the TSB in Scotland belonged to its depositors.
Although all the early Savings Banks were 'unincorporated associations' existing for the sole benefit of the depositors, the judges considered that the depositors were not members who had a right to assets. {TSB 08}


The TSB then decided to determine the rights of depositors in TSB England and Wales before the planned flotation.

A High Court judge ruled that the TSB's depositors in England and Wales do not own the Bank's assets, saying
the bank's assets are still held upon trust for depositors but the depositors' interests in those assets is limited to a right to the return of their deposits and interests. {TSB 09}


The final decision came from House of Lords judges who ruled that the assets did not belong to the depositors.

But the written judgment included that the assets actually belonged to the state {TSB 05}. The judgment said: 'Statutory trustee savings banks and their assets belong to the state subject to the contractual rights of depositors.'

The Guardian commented:
"Now - as a result of the 1985 Act - the GBP 1 billion plus privatisation proceeds (up to GBP 1.5 billion of public money) are to go to shareholders of the new company instead of the taxpayer. But there can be no doubt that had Members of Parliament known that the TSBs were owned by the State they would never have passed legislation allowing the proceeds of the sale to be handed to the company. Privatisation is supposed to be the sale, not the give-away of the century." {TSB 05}


The government went ahead with selling the TSB.

As there was deemed to be no owner to receive the purchase money, buyers received not only ownership of the bank but also the money they bought it with.

For example
... if the bank is worth GBP 1 billion and GBP 1 billion cash is raised by selling it, then the TSB ends up as a GBP 2 billion organisation. But the shareholders have only paid GBP 1 billion for it, so the business has been bought for nothing. {TSB 11}
And also
What is at stake here is up to GBP 1.5 billion of public money. The GBP 1 billion plus privatisation proceeds are to go to shareholders of the new company instead of the taxpayer. {TSB 05}

The total number of shares issued was 1.5 billion (at 100 pence a share), giving the bank a market capitalisation of GBP 1.5 billion. {TSB 10}

A later TV documentary pointed out that the costs of the sale of the TSB included total fees to the City (London's financial businesses) of about GBP 50 million. The final bill for the sale was apparently GBP 226 million. {TSB 04}


The Trustee Savings Bank (TSB) was run for the benefit of its depositors. Its profits went to depositors, to build schools and libraries, and to its reserves. It had many branches in working-class areas, was helping people to pull themselves up by their own bootstraps.

Well known for friendly and effective service, the TSB had more branches than Barclays and was considered to be better managed than the big clearing banks. It was dedicated to serving the community and effectively competing with the big clearing banks by successfully attracting deposits.

But TSB's accumulated reserves were not allocated or distributed to depositors. It had accumulated reserves of GBP 800 million, a lot of money in 1985.

Then the government privatised (sold) the TSB.

Buyers received not only ownership of the bank but also the money they bought it with.

And the GBP 1 billion plus privatisation proceeds went to the shareholders of the new company instead of the taxpayer.

Here was accumulated wealth which had been created by many small savers. It was working for the benefit of ordinary people, of the community. It was taken over and dispersed, given away.

Massive funds were serving the working population and the community, were a source of strength and support. The use of these funds was in effect being controlled by depositors, by the working population. Privatisation placed the funds under the control of people aiming to maximise profits for the new owners.

The funds were largely given to those who could afford to apply for many shares, as value of shares was considerably higher than their cost from the day they were traded on the stock exchange.

It would seem that one cannot trust legal processes to protect human rights of ordinary people in accordance with natural justice when it comes to capital and accumulated savings. So one needs to ensure that ownership of capital and accumulated savings are clearly defined and established.

A co-operative's shares carry no voting rights by themselves but allow a share-holding member to vote on the basis of one vote per member. In this way each member has one vote regardless of the amount of money he may have put into the co-operative, regardless of the number of shares he may hold.

The TSB did not distribute its reserves (or an entitlement to these) to its depositors. So one needs to allocate, distribute or assign all accumulating wealth to its rightful owners.

One needs to state clearly to whom the reserves belong and under what circumstances they are to be paid out to those who earned them, such as members or depositors.

It would also seem advisable to incorporate, say as a limited liability company, not just to limit individual liability but to establish clearly stated ownership rights.


{TSB 01} TSB Depositors Association of England and Wales. June 1986

{TSB 02} David Lascelles, Financial Times, 18/01/84

{TSB 03} A Wallace, Financial Times, 15/11/84

{TSB 04} Privatisation: Cost to Us, 08/12/86

{TSB 05} The Guardian, 05/08/86

{TSB 06} Andrew Murray, Financial Times, 21/12/84

{TSB 07} Times, 13/11/85

{TSB 08} The Guardian, 13/03/86

{TSB 09} The Guardian, 29/04/86

{TSB 10} Financial Times, 16/09/86

{TSB 11} The Guardian, 22/07/86

Relevant Current and Associated Works

Manfred Davidmann

Manfred Davidmann
1. The Trustee Savings Bank Give-Away
2. Credit Unions
3. Building Societies
4. Co-operative Retail Services Ltd
5. 5a. Co-operative Wholesale Society Ltd
5b. Co-operative Bank PLC
5c. Co-operative Insurance Society Limited

6. John Lewis Partnership PLC
7. Mondragon Co-operatives (Mondragon Corporacion Cooperativa)
8. Kibbutzim

Other relevant current and associated reports by Manfred Davidmann on leadership and management:

Title   Description
Directing and Managing Change     How to plan ahead, find best strategies, decide and implement, agree targets and objectives, monitor and control progress, evaluate performance, carry out appraisal and target-setting interviews. Describes proved, practical and effective techniques.
Style of Management and Leadership     Major review and analysis of the style of management and its effect on management effectiveness, decision taking and standard of living. Measures of style of management and government. Overcoming problems of size. Management effectiveness can be increased by 20-30 percent.
Role of Managers Under Different Styles of Management     Short summary of the role of managers under authoritarian and participative styles of management. Also covers decision making and the basic characteristics of each style.
Organising   Comprehensive review. Outstanding is the section on functional relationships. Shows how to improve co-ordination, teamwork and co-operation. Discusses the role and responsibilities of managers in different circumstances.
Work and Pay   Major review and analysis of work and pay in relation to employer, employee and community. Provides the underlying knowledge and understanding for scientific determination and prediction of rates of pay, remuneration and differentials, of National Remuneration Scales and of the National Remuneration Pattern of pay and differentials.
Work and Pay: Summary   Concise summary review of whole subject of work and pay, in clear language. Covers pay, incomes and differentials and the interests and requirements of owners and employers, of the individual and his family, and of the community.
Social Responsibility, Profits and Social Accountability   Incidents, disasters and catastrophes are here put together as individual case studies and reviewed as a whole. We are facing a sequence of events which are increasing in frequency, severity and extent. There are sections about what can be done about this, on community aims and community leadership, on the world-wide struggle for social accountability.
Social Responsibility and Accountability: Summary   Outlines basic causes of socially irresponsible behaviour and ways of solving the problem. Statement of aims. Public demonstrations and protests as essential survival mechanisms. Whistle-blowing. Worldwide struggle to achieve social accountability.
Motivation Summary   Reviews and summarises past work in Motivation. Provides a clear definition of 'motivation', of the factors which motivate and of what people are striving to achieve.
The Will to Work: What People Struggle to Achieve   Major review, analysis and report about motivation and motivating. Covers remuneration and job satisfaction as well as the factors which motivate. Develops a clear definition of 'motivation'. Lists what people are striving and struggling to achieve, and progress made, in corporations, communities, countries.
What People are Struggling Against: How Society is Organised for Controlling and Exploiting People   Report of study undertaken to find out why people have to struggle throughout their adult lives, in all countries, organisations and levels, to maintain and improve their standard of living and quality of life. Reviews what people are struggling against.
Community and Public Ownership   This report objectively evaluates community ownership and reviews the reasons both for nationalising and for privatising. Performance, control and accountability of community-owned enterprises and industries are discussed. Points made are illustrated by a number of striking case-studies.
Ownership and Limited Liability   Discusses different types of enterprises and the extent to which owners are responsible for repaying the debts of their enterprise. Also discussed are disadvantages, difficulties and abuses associated with the system of Limited Liability, and their implications for customers, suppliers and employees.
Ownership and Deciding Policy: Companies, Shareholders, Directors and Community   A short statement which describes the system by which a company's majority shareholders decide policy and control the company.
Ownership: Summary   Ownership means control, means decision-taking. This short review covers where the right to ownership comes from and how it is exercised. Ownership of land, means of production, and wealth. Ownership in relation to incomes, need, and human rights.
The Right to Strike   Discusses and defines the right to strike, the extent to which people can strike and what this implies. Also discussed are aspects of current problems such as part-time work and home working, Works Councils, uses and misuses of linking pay to a cost-of-living index, participation in decision-taking, upward redistribution of income and wealth.
Using Words to Communicate Effectively   Shows how to communicate more effectively, covering aspects of thinking, writing, speaking and listening as well as formal and informal communications. Consists of guidelines found useful by university students and practising middle and senior managers.
Exporting and Importing of Employment and Unemployment   Discusses exporting and importing of employment and unemployment, underlying principles, effect of trade, how to reduce unemployment, social costs of unemployment, community objectives, support for enterprises, socially irresponsible enterprise behaviour.
Transfer Pricing and Taxation   One of the most controversial operations of multinationals, transfer pricing, is clearly described and defined. An easily-followed illustration shows how transfer pricing can be used by multinationals to maximise their profits by tax avoidance and by obtaining tax rebates. Also discussed is the effect of transfer pricing on the tax burden carried by other tax payers.
Inflation, Balance of Payments and Currency Exchange Rates     Reviews the relationships, how inflation affects currency exchange rates and trade, the effect of changing interest rates on share prices and pensions. Discusses multinational operations such as transfer pricing, inflation's burdens and worldwide inequality.

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Relevant Subject Index Pages and Site Overview

The Site Overview page has links to all individual Subject Index Pages which between them list the works by Manfred Davidmann which are available on the Internet, with short descriptions and links for downloading.

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Copyright    ©    1996    Manfred Davidmann
All rights reserved worldwide.

01/12/96 Completed
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