Page last updated at 15:05 GMT, Tuesday, 1 December 2009

The Chelsea and Yorkshire building societies may merge

Chelsea building society branch
The Chelsea reported a £39m loss in 2008

The Yorkshire and Chelsea building societies say they are in "advanced talks" about a possible merger.

The Yorkshire is the second largest building society in the UK, Chelsea is the fifth largest.

A deal would create a second large mutually owned mortgage and savings institution to rival the Nationwide.

In August, Chelsea reported that it had set aside £41m to cover to mortgage frauds, which helped push the society into a half-year loss of £26m.

Losses

The Yorkshire has two million members and 143 branches while Chelsea has 35 branches and 700,000 members.

"The board of Chelsea has been undertaking a detailed review of the society's activities, operations, financial position and corporate structure," the society said.

"As part of this, Chelsea has considered the potential benefits to members and other stakeholders of a merger and this has culminated in discussions with the Yorkshire.

Any merger is likely to be interpreted as a rescue deal for Chelsea, whose new chairman Stuart Bernau has been reviewing the future of the business and whether it can stay independent.

In 2008, it reported a loss of £39m, the largest recorded by a building society. It had to write off £44m, which was the bulk of its investments in two failed Icelandic banks.

Chelsea also wrote off a further £15m after buying a mortgage broker in 2007 whose business subsequently collapsed in the credit crunch.

Unlike banks and other stock-market quoted companies, building societies, which are owned by their members, have a limited ability to replenish their reserves if they are drained by losses.

"For a merger to proceed, the boards of both societies would need to be satisfied that it will be in the benefit of each society's members," they said.

"The merger would also be subject to approval by each society's members and the FSA."

It is not yet known if a merger would see a windfall for the members of either of the two societies. A spokeswoman for the Chelsea said no such details had been confirmed as yet.

Takeovers

Since the autumn of 2008 there has been a flurry of takeovers of small building societies to rescue them from problems brought on by the financial crisis.

In September last year, the Nationwide agreed to stage a rescue takeover of both the Cheshire and the Derbyshire.

The Yorkshire then took over the Barnsley building society, while the Skipton took over the Scarborough.

One of the UK's largest and strongest building societies, the Britannia, has merged with the Co-op bank.

In March this year, the Dunfermline building society collapsed, to be taken over by the Nationwide.

This was swiftly followed in June by emergency action by the authorities to ensure that the loss-making West Bromwich could stay afloat.



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SEE ALSO
£41m fraud hits building society
21 Aug 09 |  Business
West Bromwich reaches debt deal
12 Jun 09 |  Business
Building society rules to tighten
05 Jun 09 |  Business
Nationwide takes over Dunfermline
30 Mar 09 |  Scotland
Building society mergers on track
31 Dec 08 |  Business
Building societies set to merge
03 Nov 08 |  Business
Barnsley Building Society rescued
22 Oct 08 |  Business

RELATED INTERNET LINKS
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FROM OTHER NEWS SITES
Telegraph Yorkshire and Chelsea to cut hundreds of building society jobs and close branches - 23 mins ago
The Scotsman Jobs fear as financial firms merge - 29 mins ago
Management Today Magazine Yorkshire Building Society swallows Chelsea to challenge Nationwide - 1 hr ago
Financial TimesYorkshire agrees takeover of Chelsea Building Society - 3 hrs ago
Sky News Job Cuts To Come As Mutuals Agree Merger - 3 hrs ago
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