Nationwide looking to buy targets in UK mortgage market

Nationwide Building Society, the largest not to demutualise, is taking full advantage of the troubles in the mortgage market and looking for rivals to snap up on the cheap. Multiple news outlets are reporting that Nationwide is in talks with Derbyshire and Cheshire amongst others.

UPDATE: This merger is now a done deal. See my post on the details of the merger.

In fact, Bloomberg calls the talks with Derbyshire and Cheshire advanced.

Nationwide Building Society, the U.K.’s biggest customer-owned lender, said it’s in “advanced discussions” with the Derbyshire Building Society and the Cheshire Building Society.

The talks are centered on the terms of “independent and proposed mergers” with the two smaller rivals, the Swindon, England-based company said in an e-mailed statement today. No financial details were given.

A merger with the Cheshire and the Derbyshire would give Nationwide an additional 95 branches in north-west and central England, according to data on the companies’ Web sites. The Nationwide currently operates in more than 900 locations in the U.K., according to its Web site.
–Bloomberg News

Update: The Telegraph is now reporting that the FSA has actually engineered a takeover by Nationwide of Cheshire Building Society due to problems with commercial property. The fact that this is a commercial property problem and not a residential property issue should leave financial service investors feeling nervous. The BBC now reports that Nationwide will actually acquire both companies.

When Nationwide snapped up Portman last year, Portman building society members received a nice windfall. The BBC, also following the new merger developments, has said that “members of the two smaller firms would not get any windfall payments.” So, obviously Nationwide is playing hardball with other mortgage lenders down on their luck and in need of a lifeline. This is because the credit crisis in the UK has become particularly acute or smaller local lenders in the aftermath of the Northern Rock debacle. The BBC says the following:

The Derbyshire is the larger of the two, with 500,000 members, 50 branches across the Midlands, the North East and Yorkshire and total assets worth more than £7bn.

The Cheshire has about 400,000 members, operating 60 building society and estate agency branches.

It has assets of just under £5bn.

Both societies saw their profits fall last year, to £8.7m and £8.1m respectively, amid tough conditions in housing and credit markets.

Like all lenders, building societies have cut the amount of loans on offer and raised rates in response to the credit squeeze, although both Derbyshire and Cheshire insist they have strong mortgage books.

However, the negative publicity surrounding the near-collapse of Northern Rock has affected smaller banks and mutual lenders more.
–BBC News

As we have seen with Banco Santander’s acquisition of Alliance & Leicester, stronger banks are poised to use this downturn to their advantage in getting value for money. The housing crash is far from over but for some financial services companies, now is the right time to buy.

Sources
Statement from Nationwide Building Society – Nationwide’s Online Site
Nationwide rescues small lenders – BBC News
FSA engineers Cheshire Building Society takeover – Telegraph
Nationwide in Merger Talks With Derbyshire, Cheshire – Bloomberg
Nationwide in talks over mergers – BBC News
Nationwide Building Society set to merge with the Derbyshire and the Cheshire – Times Online
Nationwide swoops on battered rivals – Telegraph