Nationwide, the UK's No.1 customer-owned lender, is to take over The Derbyshire and The Cheshire building societies after bad debt-induced losses left both facing "financial issues".
Nationwide, the country's No.2 mortgage lender, said the move was instigated by its smaller rivals, who approached it after suffering first-half pretax losses of 17 million pounds ($30.78 million) and 10.5 million pounds respectively. In order to avoid "prolonged uncertainty", the deals will be completed through board resolutions, side-stepping the usual requirement for a vote in favour by the societies' customers, Nationwide said.
Derbyshire and Cheshire customers will not receive a payout so as to preserve the enlarged company's capital.
"The Derbyshire and the Cheshire have independently concluded that a merger with Nationwide is in the best interests of their savers and borrowers given the financial issues faced by both societies," Nationwide Chief Executive Graham Beale said in a statement.
FSA AWARE
The mergers look set to create a mutually owned lender with nearly 15 million members, assets of 191 billion pounds, and 122 billion pounds in retail deposits, consolidating Nationwide's position as the UK's No.1 building society.
Nationwide chief executive Graham Beale said the lender had not been approached by any other struggling mutuals, and played down suggestions that the tie-ups were facilitated by the Financial Services Authority in an effort to prevent market instability.
"We have not had any other approaches and we're not in talks with anybody either, so these are the only two transactions we've been involved with," he told reporters on a conference call.
"The FSA have been aware fo the dialogue and we needed their support in terms of approving the structure of the transaction, but really that has been the extent of their involvement," he said.
Building societies, funded mainly through customer deposits, are less exposed than banks to the sharp rise in wholesale borrowing costs that has taken place since the onset of the credit crunch.
But the sector has been hit by rising savings rates as all lenders compete aggressively for customer deposits, while falling house prices amid faltering economic growth has led to an increase in bad debts.
Nationwide said its trading in the first four months of its financial year were in line with its own expectations, and described its asset quality as "strong".
The Cheshire and The Derbyshire will continue to trade through their own branch networks and under their own brand names, Nationwide said.
Nationwide will combine head office functions but, "The expectation is that the job losses are going to be relatively modest and contained," Nationwide's Beale said.
The Derbyshire currently ranks as the UK's No.9 building society with 7.1 billion pounds in assets, while The Cheshire is No.11 with assets of 5 billion.
The Nationwide holds 179 billion pounds in assets, 50.5% of all assets held by the UK's 59 building societies. ** For comment on the deal from Fitch, Moody's and S&P double click on, and respectively.
