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ANALYSIS: Show of strength from Nationwide

The Nationwide has flexed its muscles again and swallowed up rivals the Derbyshire and the Cheshire, to make it the undisputed super-power of the mutual world.

It has been just over a year since Nationwide and its 14 million members celebrated the completion of its takeover of Portman.

With the addition of the Derbyshire and the Cheshire it brings Nationwide’s member tally to a whopping 15 million.

The setting in which its latest merger occurred could not have been more different. Members of the two societies will not be able to stand against the merger after being overshadowed by the Financial Services Authority which has fast-tracked the merger.

The FSA has been forced to step in and use legislation from the 1968 Building Societies Act which allows the takeover by board resolution, rather than seeking the approval of members of the society.

Nationwide is doing as its name suggests and slowly planting its roots in every corner of the UK, snapping up the competition.

But it seems safe to assume that other societies will not be able to escape the impact of Nationwide’s takeovers on the wider mutual market.

Smaller societies may now find themselves struggling to compete with the likes of Nationwide. If losses start to outweigh profits and cash flow is tight then they could well be forced to succumb to a takeover whether they want to or not.

The credit squeeze has seen many firms forced to merge, suspend trading or at worse close their doors. While the loss of a mortgage firm is never good to see there is an extra sadness at the loss of a society.

Societies – in complete contrast to banks – are often an integral part of small or rural communities. It’s not unusual for customers at smaller societies to buy staff gifts at Christmas.

This is because staff actually have half an hour to help somebody confused by their finances and bamboozled by economic jargon. Staff will ask how customers are and mean it – not because it’s the first question on their sales script.

As the UK becomes increasingly dominated by the corporate giants, it would be a shame if all that disappeared.

For any type of mutual sector to exist though, it is inevitable that the larger societies will have to offer a helping hand to the smaller ones in order to ensure the sectors survival.

Both the Derbyshire and the Cheshire could not have brushed their expected pre-tax half-year losses of £27m under the carpet.

And if the Nationwide has not stepped in then the writing could have been on the wall for both the societies.

So while the merger will result in the loss of another mutual from the high street it will also helps secure the future of mutuals.

But with power also comes responsibility. Nationwide will have to make sure it lives by the mutual motto of working for its members and does not let its power impact on its products or service, in the knowledge that there is less competition in the market.

A super-power in any market can be a double-edged sword, and only time will tell if Nationwide’s latest merger results in it improving or weakening its proposition.

Rob Clifford, chief executive of mortgageforce

“Nationwide is an unassailable class act and if a firm was seeking consolidation Nationwide would be an obvious and sensible choice.

“I think it’s a great shame that the market conditions have brought two great, community-focused businesses to such a crossroads after more than a century of independence.

“We need to hope that these moves don’t threaten consumer choice by obliterating the regional brands, even after time.”

Mike Lazenby, chief executive of Kent Reliance

“Obviously Cheshire and the Derbyshire were in need of financial support which is why Nationwide stepped in.

“They’re all saying that you must be big to survive but that’s not true.

“Kent Reliance is much smaller than both the Cheshire and the Derbyshire but its having its best year ever. The size issue is a smoke screen.”

Andrew Montlake, partner at Cobalt Capital

“I think we may see some further similar moves given the market conditions we are in and it seems to be a sensible move for all the three main parties involved.

“While there is a general concern over a possible decline in consumer choice I think the Nationwide has acted in the best interests of the existing customers of the Derbyshire and the Cheshire which should see them feeling much more secure.

It is obviously a commercially beneficial move for Nationwide as well and on the face of it at least, it looks like all parties and the customers are set to benefit from the move.

Jonathan Cornell, managing director of Hamptons Mortgages

“In some ways its good news and some ways bad news. It is good in the fact that these societies have been saved and their customers’ savings and mortgages protected.

“But it’s sad news that even societies are experiencing problems now and the number of lenders is falling.”

Kevin Friend, strategic partnerships director at

“This will be the first of many such mergers and acquisitions as the market consolidates across all sectors.

“Societies are finding it very hard and many had underestimated the depth of the current crisis. It makes sense.”

David Hollingworth, mortgage expert at London & Country

“Clearly a broker will always lament the effective passing of another two mortgage lenders and the reduction in competition in the market that brings with it.

“But in the current market and the uncertainty that the Derbyshire and the Cheshire undoubtedly faced means that this has to be a positive move for their members.

“Although there will be no payout for the two societies’ members, Nationwide can be viewed very much as a white knight for the mutual sector.”

Alan Cleary, managing director of edeus

“A shock the size of that which global markets are currently experiencing will cause a flood of consolidation. Therefore, this morning’s announcement is not surprising and will not be the last.

Roy New, sole broker

“I think it’s bad news, as it means another two brands that brokers wont be able to go to.

“It costs a lot to maintain three independent systems so I would expect the Nationwide brand to takeover the Derbyshire and the Cheshire brands like it did with the Portman.

“The merger was bound to happen – the big fish always ends up eating the little fish. Hopefully Nationwide will keep the individual brands, but I don’t see it.”

Mike Fitzgerald, sales director at Brentchase Financial Services

“It seems that the FSA have acted very quickly in helping this merger to take place.

“The FSA have obviously been concerned as the powers to speed through this merger without the members of the societies having a vote has only been used once before.

“With both the Derbyshire and the Cheshire facing losses any delay might have caused their financial woes to escalate and even triggered a run on deposits.

“I am glad to see that both lenders will keep there branch network and identity as loss of this would have been another nail in the coffin for consumer choice.”

Danny Lovey, principal of The Mortgage Practitioner

“I think it is important that confidence is retained in the system and it is good to see the Financial Services Authority and the Bank of England working to keep things orderly.

“Maybe the FSA has learnt something. Pity the same didn’t happen when Lloyds TSB offered to take on Northern Rock in exchange for some funding help.

“If that had happened then, so much of the pain of the subsequent collapse of Northern Rock may have been avoided.”

Graham Beale, chief executive of Nationwide

“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.

“The core member businesses of both societies are in good shape and have a better future as part of a larger organisation.

Graham Picken, chief executive of the Derbyshire

“The board recognised a number of financial uncertainties facing the Derbyshire, and has taken this prudent and pre-emptive action in seeking a solution to secure the interests of our members over the long-term.

“I have every confidence that the Derbyshire’s members will benefit from being part of the enlarged society.”

Karen McCormick, chief executive of the Cheshire

“The core member business is strong. However, while we have performed resiliently, the unprecedented market conditions and poor economic outlook have led the board to consider its strategic options.

“I am confident that our members will benefit from the strength of the combined organisation.”

Adrian Coles, director-general of the Building Societies Association

“There have always been mergers between building societies and it is
no surprise to see mergers announced in the current difficult market

“Today’s announcement represents a prudent reaction by two societies to the particular positions in which they find themselves, and the continuation of a long tradition in which building societies solve any potential problems emerging within the sector.

“Overall, the mutual sector is coping well with the current difficult conditions in the housing market.”


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