Nationwide is in better shape than many other lenders
Two UK mortgage lenders have had to be rescued by the Nationwide Building Society after running into financial difficulties.
The Nationwide will take ownership of smaller rivals the Derbyshire and Cheshire Building Societies with the approval of financial regulators.
Members of the two firms will not get any bonus payments.
Smaller lenders are under increasing strain due to the credit squeeze and rising mortgage defaults.
Adrian Coles, director-general of the Building Societies Association (BSA), welcomed the rescue by the Nationwide, but said that the problems were not reflected in the wider sector.
"Overall, the building society sector is coping well with the current difficult conditions in the housing market," he said.
"I'm very confident there are no other building societies in a similar position currently to that of the Derbyshire and the Cheshire."
The deals are expected to be completed by the end of the year subject to approval by the Financial Services Authority and the Office of Fair Trading.
They will boost the Nationwide's position as the UK's biggest mutual lender adding almost one million more members to its existing 14 million.
The enlarged firm will have 1,000 retail outlets, £191bn of assets and £122bn of retail deposits.
"Nationwide is in a unique position because of its size and financial strength to provide support, and we regard it as both responsible and commercially beneficial to undertake these mergers," said Nationwide chief executive Graham Beale.
While the Derbyshire and the Cheshire will retain their brands and branch network, job losses at the firms' head offices are likely as overlapping functions are streamlined.
The enlarged firm will continue to be run by Mr Beale, while the chief executives of the two smaller lenders will remain within the organisation in non-board roles for 12 months.
The Derbyshire and Cheshire had separately approached the Nationwide to help them survive the tough economic climate and seek protection for their borrowers and savers.
Both firms said they expected to make a loss in the first six months of 2008 as a result of the declining UK commercial and residential property market.
Following a strategic review, the Derbyshire, which has assets of £7.1bn and 50 branches, identified that it would make a pre-tax loss of £17m in the six months to June with further losses likely.
No windfall payments
Meanwhile, problems with a commercial property loan will result in the Cheshire making a £10.5m pre-tax loss in the first half of the year, the firm said.
The Cheshire has assets of £4.9bn, 45 branches and more than 440,000 members.
Despite these problems, the Nationwide considers their core loan businesses to be fundamentally sound.
But it would not be handing out any windfall payments to members of either the Derbyshire or the Cheshire.
In addition, neither firm's members will be given a vote on the transaction to ensure that the mergers are completed as quickly as possible.