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Monday, September 08, 2008

Cheshire & Derbyshire “saved” by Nationwide

It looks like the Cheshire and Derbyshire Building Societies are about to be taken over by the Nationwide Building Society. The Derbyshire is the 9th and the Derbyshire the 11th biggest societies with about 1 million customers between them.

The Derbyshire has been hit because it could not raise money on the money markets...the credit crunch again. Whilst the Cheshire had encountered some problems with its commercial property lending.

The Financial Services Authority has had a hand in recommending the deals to the 2 societies and the speedy negotiations which have taken place

Will there be any windfall payments?

Borrowers & savers with the Derbyshire or Cheshire should not expect any windfall payments owing to the problems they have encountered.

2 comments:

Tim Almond said...

Hi Sean,

BS mergers generally don't give any windfall payments as the status doesn't change in quite the same way as going PLC.

What's interesting about this is that Building Societies have to raise 50% of their lending from savers, which should have made them more immune to the credit crunch effects.

Also, Nationwide is awash with cash. They had a massive boost when there was the run on Crock - a lot of money taken out went into Nationwide.

Sean Wilson said...

Tim,

Thanks for your comment.
A couple of points.

1 The decision whether to grant windfall payments is an actuarial decision. It depends on the finances & assets of the BS being swallowed up.

2 Northern Rock customers would have been better off leaving their money there. The Rock has had some very attractive rates over the last year (see also point 3)

3 Nationwide have not used their financial health to reduce mortgage rates or increase rates for savers....which suggests...

4 Nationwide's dominance in the BS market is not good for competition.

5 Nationwide (in Swindon at least) is quite inefficient. It relies on lowly paid teenage staff rather than trying to find cost savings through efficen