by Mark Johnston
Every year sees at least one or two building societies join forces and merge into bigger companies and set their sights on expansion and increased revenue. The latest could potentially see the merger of the second biggest building society, Yorkshire, merge with the ninth largest, Norwich and Peterborough.
Yorkshire Building Society has something of a reputation when it comes to taking over it’s smaller rivals. Last year, Chelsea was absorbed into the group in a high profile take over that lead to the Yorkshire taking on their exposure of £41 million worth of mortgage fraud within its risky buy to let sector.
2008 saw the Yorkshire take in the Barnsley Building Society after she failed under the losses associated with the collapse of some Icelandic banks and their faulted deposits.
The latest possible merger on the cards for the Yorkshire is set to take on Norwich and Peterborough but this too comes with some risk. N&P has put aside an awesome figure of £57 million to cover compensation claims by circa 3,200 customers who invested in the now failed Keydata Investment Services Ltd. This compensation aside, Norwich and Peterborough have reported a pre tax loss of £48.9 million for 2010. Taking account of this potential loss, the Norwich and Peterborough building society would have £5.1 million in pre tax profits, a better result than the year before when they posted pre tax profits of £1.3 million. This shows that the company was actually doing well before the disaster at Keydata.
Other reasons that Norwich and Peterborough have sought a merger include “higher long-term funding and liquidity costs, and a competitive and regulatory bias to size”. Something else the other 48 building societies may take into consideration too.
There are clearly dark days ahead for smaller lenders and building societies and mergers may be one way to deal with these challenges. That said there is significant strength and competitiveness in the market with a few societies reporting stronger than expected financial results.
With the merger of Chelsea and Yorkshire Building Society, and the innate strength within the organisation, they have a total asset base worth £30.1 billion for 2011. With growth averaging at about 30 per cent year on year they are definitely a company to take into consideration for the future. The Yorkshires pre tax profits for 2010 were £115.4 million, up from their financial year in 2009 when they reported a loss of about £12.5 million.
In 2009, the Yorkshire had a gross mortgage lending book of £939 million, quite impressive but nothing compared their 2010 figures when they tripled the book to £2.9 billion. Based on their strong management and a policy of prudent lending, the Yorkshire has been able to grow and grow responsibly.
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