Banking News Nationwide Announces Mergers With Derbyshire And Cheshire BS 2187
Nationwide announces mergers with Derbyshire and Cheshire BS
08 September 2008 / by Daniela Gieseler
Derbyshire is the 9th largest British building society with 53 branches and 485,000 members, while Cheshire ranks 11th with 45 branches, 13 estate agency outlets and 440,000 members. The takeover of the societies will add another £12billion to Nationwide’s £179billion portfolio.
In the wake of the credit crunch both of the smaller building societies have experienced considerable losses in the last year and are expected to announce further losses for the first half of 2008. They have also struggled to secure funding in the inter-bank lending market, which forced them to withdraw some products.
The Derbyshire Building Society’s move to approach Nationwide came as concerns about the quality of assets in its sub-prime and commercial loan portfolios grew which are further endangered by the uncertainty of the economic climate. Cheshire has no immediate concerns about its portfolio, but is worried about how it will fare if market conditions continue to worsen.
By contrast, Nationwide has benefited from the ‘flight-to-quality’ after Northern Rock’s collapse last year. The Swindon-based building society got £1 of every £5 pounds saved in the financial year ending in April 2008 with 1.5 million new savings accounts opened.
As Nationwide’s business is mainly funded by savings (71 per cent), it is less reliant on borrowing from the wholesale market. While it has increased its share in savings, it has pulled back from the mortgage market with its market share falling from 11 to 7 per cent.
Nationwide will preserve both building societies’ network of branches as well as their branding, but will not pay a distribution to their members in order to retain capital in the current difficult economic climate.
Graham Beale, Nationwide’s chief executive, commented on the mergers: “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.
“The core member businesses of both societies are in good shape and have a better future as part of a larger organisation,” Mr Beale said. “Nationwide is in a unique position because of its size and financial strength to provide support, and we regard it as both responsible and commercially beneficial to undertake these mergers.”
The Building Societies Association’s (BSA) Director General Adrian Coles welcomed the mergers: “The mergers will serve to further enhance the strength and stability of the sector.
“Today’s announcement represents a prudent reaction by two building societies to the particular positions in which they find themselves. Overall, the building society sector is coping well with the current difficult conditions in the housing market.”
The transactions with both building societies are expected to conclude before the end of the calendar year, subject to confirmation by the Financial Services Authority (FSA) and the Office of Fair Trading (OFT).
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