The board of IMB Ltd, one of Australia's largest building societies, has accepted a recommendation that it cancel its publicly traded ordinary shares through a series of buybacks.Yesterday, IMB released a capital structure review by consultants Grant Samuel Corporate Finance and Watson Mangioni Lawyers, which recommends that the building society's structure needs an overhaul.IMB has a hybrid structure. It is a mutual approved deposit-taking institution and also a public company limited by guarantee and shares. The shares are traded on an exempt market operated by IMB.It has 39.9 million shares on issue and 4200 shareholder members among its 180,000 members. Many of its shareholders are high net worth investors with negligible holdings with institutional investors.At the present share price, of A$3.52, it would cost the building society A$140 million to buy back its capital; this would be equal to two-thirds of its capital base.According to the consultants: "The ordinary shares do not sit comfortably with the mutual structure and present challenges for IMB's board in balancing the expectations of guarantee members and shareholder members."The problems include the fact that some shareholders see themselves as proprietors rather than members of a mutual and the cost of servicing ordinary shares (through dividend payments) has become "very significant".Another problem is that the shareholders have rights to a significant share of surplus assets if IMB is wound up.On the positive side, the ordinary shares contribute to tier one capital and allow IMB to utilise accumulated franking credits.When the board commissioned the consultants to review the group's structure its goal was to achieve long-term growth by reducing the cost of regulatory capital, dealing with the loss of capital through the payment of dividends and to be able to participate in the consolidation of the mutual sector.The IMB board has identified mergers with other mutual ADIs as a key strategy for growth.The consultants' view is that the ordinary shares have become an expensive form of capital for IMB because of the level of dividend payments. They also stand in the way of the group taking up merger opportunities. IMB would not be able to buy back all of its shares at once because of capital constraints, so the consultants have recommended a series of buybacks.Ordinary shareholders would have to approve a buyback. However, if IMB buys back 10 per cent of the shares every 12 months it would not need shareholder or member approval.This means it might take more than a decade to buy back all of its shares by which time the remaining 100 or so mutual credit unions and building societies are likely to have consolidated much further.IMB might also have trouble convincing the Australian Prudential Regulation Authority that it is a good idea to cancel tier one capital. The consultants concede that the proposed buybacks would reduce tier one capital in the medium term, but they argue that the reduction in the outflow of retained earnings in future dividend payments would result, over time, in a strengthening of IMB's capital base.The consultants recommended