Building societies: Nationwide in merger talks with rival lenders

Building societies: Nationwide in merger talks with rival lenders

Nationwide, Britain's largest building society, yesterday announced it is on the brink of swallowing the Derbyshire building society and Cheshire building society.

The move, the result of the credit squeeze on lenders, is expected to put pressure on other building societies to merge as the crisis in the mortgage market deepens. With sales down by half since last year and prices set to halve in real terms from their peak, smaller societies are under pressure to join forces.

It is understood that Nationwide has pledged to preserve the names and branches of the two societies as part of the deal, but is expected to dismay unions with cuts in back office jobs.

It was not known yesterday how much Nationwide was willing to pay for the two societies or the level of payouts to members.

The Derbyshire and the Cheshire, which rank ninth and 11th among building societies by asset size, will add almost £12bn to Nationwide's £178bn. The Derbyshire has 50 branches and the Macclesfield-based Cheshire has 45 plus 13 estate agency branches.

However, payouts to the Derbyshire's 468,000 members and the Cheshire's 340,000 members are likely to disappoint members. The tie-up with the Portman Building Society last year, first proposed a year before the credit crunch began to bite, triggered windfall payments of between £200 and £1,000 for its members. The current deal will almost certainly be far less.

Nationwide said in a statement:.....continued below

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"The board of Nationwide Building Society can confirm that it is in advanced discussions with the Derbyshire and the Cheshire building societies over the terms of independent and proposed mergers.

"Further announcements will be made once those discussions have concluded."

Discussions are at an advanced stage, but it is thought the talks relating to the Derbyshire are nearer completion.

The Derbyshire deal is understood to have been instigated by Graham Picken, the society's chief executive, in the early summer, when deteriorating credit markets prompted him to consider a takeover by a larger, better-capitalised rival.

It is believed to be one of a number of merger discussions taking place in the building society sector, as smaller firms look for merger partners in order to provide greater security for customers.

Many smaller societies lack the capital needed to lend at a time when rises in arrears and house price falls increase the risk of them losing money on their mortgage deals.

This year the FSA, the City watchdog led by Hector Sants, warned building societies to consider how they would survive a prolonged credit squeeze. It said they were accumulating too much risk in buy-to-let mortgages and not preparing for "extreme stress scenarios".

Nationwide opened 1.5 million new savings accounts in its last financial year - equivalent to 4,000 a day - with almost £1 in every £5 saved in the UK going into a Nationwide account. The mutual's share of the new mortgage market shrank to 7.1% - compared with 11% a year ago - as it looked to focus on quality rather than boost market share. It funded its mortgage lending entirely through retail deposits, which trebled to £9.1bn.

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