Chelsea confirms Yorkshire merger talks
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The board of Chelsea has confirmed that it is in advanced discussions with the Yorkshire as regards a merger of the two societies.
Yorkshire is the second largest building society with group assets of £23bn, Chelsea is the fourth largest society with group assets of £14.6bn.
A merger has the potential to create a second major force in the building society sector with assets in excess of 35bn.
The board of Chelsea says it 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.
Chelsea says it continues to be well-funded and have strong liquidity.
The merger discussions with the Yorkshire contemplate a capital exchange of Chelsea’s subordinated debt into a new subordinated debt instrument of half the principal amount with a fixed interest coupon of 13.5% per annum and a maturity of fifteen years which would be issued by the enlarged Society and be convertible into profit participating deferred shares in the event that the enlarged Society’s core tier 1 ratio fell below 5%.
The effect of the capital exchange would be to increase the core tier 1 capital position of the enlarged Society by £100m as well as creating £100m of contingent core tier 1 capital.
Any such exchange would be subject to approval by Chelsea’s subordinated debt holders.
Chelsea says there can be no certainty that a transaction will take place. For a merger to proceed, the boards of both societies would need to be satisfied that it will be in the benefit of each society’s members. The merger would also be subject to approval by each society’s members and the FSA.
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Readers' comments (1)
Ketan Yadav - Avenue & Co Private Finance | 2 Dec 2009 1:59 pm
Both Chelsea and Yorkshire have dual priced and stopped distribution via intermediaries. I do feel that any lender taking that stance is losing a huge ditribution channel at a very low cost.
Very few lenders will be able to emulate the success of HSBC direct only deals - becuase they simply dont have the funds to lend or the low rates to match.
Lenders must learn to offer unique features on their products instead of low rates to increase business.
I recently won a new client over First Direct as they offered a very cheap product (Offset Tracker 2.59% Life) but the product would not lend more than 2.75 x Joint income and would not take into account my clients bonus payments over the last 3 yrs which were steady. I managed to place the case with a lender who took 100% of bonus payments. Thats the diffference that lenders need to account for to gain market share.
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