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Nationwide to merge with rivals

08/09/2008

Nationwide Building Society has confirmed it is to merge with the Derbyshire and Cheshire Building Societies.

The UK's largest building society will acquire its two rivals through separate transactions, in a move to ensure the viability of the mutual sector in the UK.

The decisions were described by Nationwide as "prudent and pre-emptive", following the identification of "financial issues" faced by the smaller societies.

Smaller societies have come under pressure in recent months to consolidate positions, as the liquidity crisis reduces the availability of wholesale finance.

The move is in the "best interests" of the savers and borrowers of both smaller societies, said Graham Beale, Nationwide's chief executive.

"The core member businesses of both societies are in good shape and have a better future as part of a larger organisation," added Mr Beale.

"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 Derbyshire Building Society has assets of £7.1 billion, with some 50 branches and 485,000 members.

The company is expected to report an unaudited pre tax loss of £17 million for the half six months to June 30th arising predominantly in its near-prime, sub-prime and commercial loan portfolios.

"The board recognised a number of financial uncertainties facing the Derbyshire, and has taken this prudent and pre-emptive action in seeking a solution to secure the interests of our members over the long-term," commented Graham Picken, chief executive of the Derbyshire.

Similarly the Cheshire has assets of £4.9 billion, 45 branches and over 440,000 members.

"While we have performed resiliently, the unprecedented market conditions and poor economic outlook have led the board to consider its strategic options.

"I am confident that our members will benefit from the strength of the combined organisation," added Karen McCormick, chief executive of the Cheshire.

The Cheshire expects to incur an unaudited pre-tax loss of £10.5 million for the same period, due to an exceptional £11.5 million impairment charge on a single secured commercial loan.

"There have always been mergers between building societies and it is no surprise to see mergers announced in the current difficult market conditions," commented Adrian Coles, director-general of the Building Societies Association.

"Today’s announcement represents a prudent reaction by two building societies to the particular positions in which they find themselves, and the continuation of a long tradition in which building societies solve any potential problems emerging within the sector."