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Losses at mutuals prompt merger

Expected pre-tax half-year losses in excess of £27m have played a major role in the Derbyshire and the Cheshire merger with Nationwide, the UK’s largest building society.

The Derbyshire has assets of £7.1bn, 50 branches and 485,000 members. It expects to report an unaudited pre-tax loss of £17m for the half-year to June 30 2008.

The mutual says the losses stem from its near-prime, sub-prime and commercial loan books, and says these losses represent material financial uncertainties for the lender in the current economic climate.

The Cheshire has assets of £4.9bn, 45 branches and over 440,000 members. It expects to incur an unaudited pre-tax loss of £10.5m for the half year to 30 June 2008 due to an exceptional £11.5m impairment charge on a single secured commercial loan.

Nationwide says it is satisfied that both mutuals have sufficient general reserves to cover current and expected future losses.

The merger comes two years after Nationwide merged with the Portman in September 2006. The takeover of the Derbyshire and the Cheshire is expected to be concluded by December 2008.

Adrian Coles, director-general of the Building Societies Association, says: “The BSA welcomes the mergers of Nationwide with the Derbyshire and the Cheshire. The mergers will serve to further enhance the strength and stability of the sector.

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

“Today’s announcement represents a prudent reaction by two building 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.

He adds: “Overall, the building society sector is coping well with the current difficult conditions in the housing market. Building societies have always seen maintaining the safety of their investors’ funds as their paramount duty.

“No member of a building society has lost any of their investment since at least 1945, and probably for a long time before that.

“I am very confident that building societies will maintain this record for many years into the future.”


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