SAVINGS GIANTS IN MEGA-MERGER
YORKSHIRE Building Society is in advanced merger talks with beleaguered competitor Chelsea, in a deal experts said could fuel further consolidation in the sector.
A tie-up, yet to be approved by the FSA, would create a major force in the building society arena. With £38bn assets and 2.7m members it would be second only to Nationwide.
Chelsea, which has 35 branches and 700,000 members, made losses of £39m in 2008 and reported a £26m deficit for the first half of 2009 after setting aside £41m to cover mortgage frauds.
Its difficulties generating profits have led to pressure on its capital ratio, which must be maintained to satisfy the regulator’s requirements.
Yorkshire, based in Bradford, has 143 branches and will be seen as the dominant partner in a deal. Its chief executive Iain Cornish is being tipped to lead the merged group.
In a statement yesterday, Chelsea said: “The board has been undertaking a detailed review of the society’s activities, operations, financial position and corporate structure. As part pf this, Chelsea has considered the potential benefits… of a merger and this has culminated in discussions with Yorkshire.”
The societies said they would issue contingent capital, which converts into core tier 1 capital if an organisation’s ratio dips below a specified level.
In this case, Chelsea’s subordinated debt would be converted into a new instrument with an annual 13.5 per cent coupon. It would convert into profit participating deferred shares if the company’s core tier 1 ratio fell below five per cent.
Chelsea said this would increase the enlarged society’s core capital by £100m as well as creating £100m of contingent capital.
The news of talks follows Nationwide’s rescue of the Cheshire and Derbyshire building societies last September, Yorkshire’s acquisition of the Barnsley and the Skipton’s merger with the Scarborough.
A spokesperson for the Building Societies Association said a link-up between Yorkshire and Chelsea could spur further mergers, adding: “I believe there will be more to come.”
TOP FIVE MUTUALS BY GROUP ASSET VALUE
1) NATIONWIDE – £202.3bn
2) YORKSHIRE & CHELSEA – £37.6bn
3) BRITANNIA / CO-OP – £37.2bn
4) COVENTRY – £17.3bn
4) SKIPTON * – £16bn
5) LEEDS – £10.1bn
Source: Building Societies Association
* Post merger with Scarborough August 2009