Building societies in merger talks

Published on Tuesday 1 December 2009 20:39

YORKSHIRE and Chelsea building societies are in advanced talks over a deal to create a new mutual worth over £37 billion and with nearly three million customers.

• Chelsea and Yorkshire building societies may merge. Picture: PA

The Yorkshire, which has 143 branches in the UK, including 14 in Scotland, is the second-largest building society in the country after Nationwide, with two million members.

The Chelsea is the fourth-biggest, with 700,000 members. Under the proposed deal, the Yorkshire, with assets of 23bn, would take over the Chelsea's 14bn of assets and 35 branches.

The Financial Services Authority is not believed to have forced the talks, but the proposed deal is perceived as a rescue package for the Chelsea, which has been vocal in its desire to partner with a bigger rival.

Stuart Bernau, chairman and stand-in chief executive of the Chelsea, is expected to announce the results of a three-month review of the society's future to its board tomorrow.

Last year it reported a record loss for a building society of 39 million, after writing off 44m due to investment in failed Icelandic banks and over 40m due to buy-to-let and self-certification mortgage fraud.

In a statement, Chelsea Building Society said: "The board has been undertaking a detailed review of the society's activities, operations, financial position and corporate structure. As part of this, Chelsea has considered the potential benefits to members and other stakeholders of a merger and this has culminated in discussions with the Yorkshire."

The deal would need to be approved by savings and mortgage customers at both societies and is subject to FSA approval.

It is believed that members are unlikely to enjoy windfalls from the union, however, as the societies are more likely to follow other recent mergers in the sector by conserving their cash instead.

Ray Boulger, senior technical manager at broker John Charcol, said that, with both societies significantly cutting back on their mortgage lending in recent months, a merger would have little impact on the mortgage market in the short term.

"Until earlier this year, Yorkshire Building Society was quite active in the mortgage market, with a competitive range of trackers and fixed-rate products," said Boulger. "The Chelsea has also been pretty inactive and its balance sheet has shrunk despite increasing its deposits, so in the short term this merger would make little difference."

A deal would reduce the number of building societies in the UK to 51 after two years of consolidation in the sector.

Both societies took over smaller rivals last year, with the Yorkshire acquiring Barnsley Building Society and Chelsea taking over the Catholic Building Society.

Other recent deals in the sector include Nationwide's takeover of Dunfermline's savings arm and Skipton Building Society's acquisition of the Scarborough.

Chelsea and Yorkshire building societies were also among the nine societies to have their ratings downgraded by both Fitch and Moody's earlier this year.