Building societies vanish!
Forget the Large Hadron Collider at CERN. The real black hole we should be concerned about this week is blue and red and busy absorbing its rivals with or without their members’ permission.
Last year Nationwide took over Portman building society. At least its members got a vote and a windfall payment averaging £445. This week it was the turn of the slightly smaller Derbyshire and Cheshire building societies. They will disappear by the end of the year as Nationwide absorbs their 825,000 savers, 133,000 borrowers, 1576 staff and 95 branches. But none of the members of Derbyshire or Cheshire will get to vote on the matter. And nor will they get a payment for the share of the societies’ assets which they own.
The exceptional terms of the merger were approved by the Financial Services Authority due to the uncertain financial position of both societies. Derbyshire was expecting to post a loss of £17 million in the first half of 2008 as a result of its unfortunate gambles on risky mortgages. Cheshire was about to report losing £11.5 million in a poor bet on a commercial property. The directors of Cheshire and Derbyshire will all resign.
Both societies could have carried on. But the FSA was concerned that if they tried and failed the collapse of either the 9th or the 11th biggest building society would undermine confidence in the savings and mortgage industry. And a year after the Northern Rock debacle the last thing the Government needs is savers queuing up to take their cash out of two well known societies.
So nearly a million savers and borrowers will miss out on windfall payments to preserve confidence in the financial services industry and avoid another damaging panic.
When Nationwide took over Portman last year it became bigger than all the other societies put together. After this week’s merger it will be even more dominant with 54% of the total assets owned by all 57 remaining building societies. Its nearest rival – Britannia – owns just 10%.
Is this monopoly among building societies good for the mutual movement? Or does it leave Nationwide looking, feeling, and behaving so much like a bank that it might as well be one? It was, after all, the only society which joined with the seven High Street giants in a court action to challenge the Office of Fair Trading ruling that overdraft charges had to be fair. A strange move for a society which was once ‘proud to be different’.
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