A rumour has been circulating the industry that the Financial Services Authority has briefed Adrian Coles, director-general of the Building Societies Association, to prepare the media for a growing number of mergers.
This has been refuted by Coles, and Tony Prestedge, executive di-rector of group development at Nationwide, has denied that other mergers are in the pipeline.
He said: “We’ve not been approached by any other society. Our view of the sector is that it is well capitalised, has strong liquidity and few problems with wholesale markets.”
The Cheshire – the eleventh largest society in the UK with assets of £4.9bn – was posting poor results even in the good years that preceded the credit crunch.
Indeed, in her first year in charge, present chief executive Karen McCormick had to fight a rearguard campaign against the Mail on Sunday which was questioning the safety of investing in the society. That followed the publication of the mutual’s 2005 results which saw it head into the red.
Its 2006 results showed post-tax group profits of £10.6m but by 2008 that had slumped to £5.1m. And worse is to come. It expects pre-tax losses of £10.5m for the half-year to June 30 due to an exceptional £11.5m impairment charge on a single secured commercial loan.
The irony for the society’s 440,00 members is that the merger is effectively a rescue so there will be no windfall payout as there would have been when the Portman, now also subsumed into Nationwide, made overtures to take over the society when it went into the red.
The Derbyshire – the UK’s ninth largest mutual with assets of £7.1bn – saw its profits grow under a diversification programme, only to slump dramatically last year when it took a £4.5m charge to in-crease its provision for bad debt.
The luckless man in charge, Graham Picken, took over from Peter Richardson in December last year but the legacy of an adventurous diversification strategy in a difficult market appears to have been a mountain too high to climb, and he approached Nationwide over the summer months.
The Derbyshire pulled out of sub-prime lending earlier this year and there are concerns over the quality of the mortgage books it acquired from GMAC-RFC and Kensington.
It expects to report an unaudited pre-tax loss of £17m for the half-year to June 30 arising predominantly in its near-prime, sub-prime and commercial loan portfolios.
According to Nationwide, the mergers will be completed as separate transactions.
It says: “These mergers are prudent actions taken independently by the boards of the two mutuals following the identification of financial issues.”
The Derbyshire and The Cheshire brands will be retained for direct consumer business at branches and call centres and on the internet, but Nationwide won’t continue to trade the brands as business to brokers.