Page last updated at 14:30 GMT, Tuesday, 23 March 2010

Coventry building society merges with Stroud & Swindon

Notes and coins
Buildiing societies are under intense financial pressure

The Coventry building society, the UK's third largest, is taking over the loss-making Stroud & Swindon society.

The deal will mean the closure of the Stroud & Swindon headquarters in Stroud with likely job losses.

The merger will complete on 1 September and there will be no bonus payments to members of either society.

But the Stroud & Swindon's members will receive better savings rates and some will see a big cut in their mortgage rates.

"Approximately two thirds of [251,000] accounts held by savings members are expected to receive an increase in their existing rate, matching equivalent variable rate savings products offered by Coventry," said the Stroud & Swindon.

"Over 25% of accounts held by borrowing members, being those on Stroud & Swindon's residential standard variable rate (SVR) of 5.99%, are expected to benefit from a reduction in their mortgage payments as they move onto Coventry's lower SVR, currently 4.74%."

Losses

The deal requires a vote of the Stroud & Swindon's members but is unlikely to be opposed.

The impact of an historically low bank base rate on our tracker mortgages... has led to a second year of losses
Stroud & Swindon

The society stressed that with the Bank of England keeping interest rates at historically very low levels, it was facing a financial squeeze and last year lost nearly £6m.

"The impact of an historically low bank base rate on our tracker mortgages coupled with the demand for, and the rising cost of, retail funds has led to a second year of losses for Stroud & Swindon," it admitted.

"With interest rates unlikely to rise in the near future and given the many benefits to Stroud & Swindon members of a combination with Coventry, the Board of Stroud & Swindon is unanimous in its view that this merger is in the best interests of its members."

The merger will create a society with 1.5 million members and 91 branches in the West Midlands and South West of England.

Its headquarters will be in Coventry.

Difficulties

The merger is just the latest piece of consolidation in the building society movement provoked by the stress of the credit crunch and the banking crisis.

BUILDING SOCIETY MERGERS
Nationwide and Derbyshire
Nationwide and Cheshire
Skipton and Scarborough
Yorkshire and Barnsley
Nationwide and Dunfermline
Yorkshire and Chelsea
Skipton and Chesham
Coventry and Stroud & Swindon

In February the Chesham, the UK's oldest society, agreed to be taken over by the Skipton, and last December the Yorkshire agreed to take over the Chelsea.

Since 2008 the Dunfermline, Scarborough, Barnsley, Cheshire and Derbyshire building societies have also had to be taken over or rescued.

In those cases they suffered losses mainly as a result of ill-advised forays into lending to commercial property developers or investing in now-insolvent Icelandic banks.

But other societies are now finding that low they can hardly make ends meet.

Competition from banks for savers money is forcing the societies to offer higher interest rates than they would like to the saving public.

At the same time some societies are not making sufficient money on their mortgage lending because the variable rates they offered in the past, set at an unrealistically narrow margin above Bank Rate, mean this lending is not generating enough income.

Last month the Moody's ratings agency warned that some building societies would face a "possibly life-threatening" fight for savers' money, and predicted further mergers.



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