Britain's No. 2 mortgage lender will assume control of troubled Derbyshire and Cheshire in merger of almost 15 million customers.
LONDON -- The Nationwide Building Society, Britain's second-largest mortgage lender, said Monday it is taking over two smaller rivals that had sought shelter from the fallout of the global credit crunch.
Nationwide said it will absorb the Derbyshire and Cheshire building societies, both of which said they expect to report losses for the first half of 2008. Financial terms of the deal were not disclosed.
Facing the music
"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," said Nationwide chief executive Graham Beale.
Nationwide denied suggestions that it had been forced into the deal by the Financial Services Authority, the government regulator which is keeping a close eye on the mutual building society sector.
However, it argued it was important to maintain a healthy sector and said it was in a "unique position," given its size, to offer support.
Mutual building societies, which are owned by their customers rather than external shareholders, have generally weathered the credit crunch storm better than banks.
Their strategy of funding the bulk of their lending through retail deposits has left them relatively unscathed from the problems in the wholesale money markets, with the sector raising just 30% of its funding that way.
At the same time, their more conservative lending strategies have meant they have far less exposure to higher risk sectors such as sub-prime lending and the buy-to-let market.
"However, while building societies aren't necessarily looking to merge, the impact of current market circumstances, the inherent difficulties in raising new capital, and the burden and cost of an increasingly complex regulatory environment, all fall disproportionately on smaller institutions," said Steve Williams, head of building societies at business advisory firm Deloitte.
"Therefore, we should expect to see a few more deals, although it will be a trickle rather than an avalanche."
The deadline for completion
Nationwide's deal with Derbyshire and Cheshire should be completed by the end of the year after Nationwide used special powers in the Building Societies Act to enable it to complete the process without the need for a vote by members of the two societies.
The combined organization will have almost 15 million customers, around 1,000 retail outlets, £191 billion ($340 billion) in assets and £122 billion ($217 billion) in retail deposits.
Nationwide said it will retain the Derbyshire and Cheshire brands and branch networks. It will not be making any special payment to members of the two societies.
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