Nationwide, Derbyshire and Cheshire to merge

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Nationwide will merge with rivals


Nationwide is in better shape than many other lenders

The Nationwide Building Society has said it will merge with two of its smaller rivals, the Derbyshire and Cheshire Building Societies.
The Nationwide, the UK's biggest mutual lender with 14 million members, is to step in to support the two firms with the approval of financial regulators.
Smaller lenders are under increasing financial strain due to the credit squeeze and rising mortgage defaults.
Members of the two smaller firms will not get any bonus payments.
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.
'Commercially beneficial'
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.
The Derbyshire has assets of £7.1bn, 50 branches and 485,000 members. The Cheshire has assets of £4.9bn, 45 branches and more than 440,000 members.
The merger will create an organisation with almost 15 million members, around 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.
When the Nationwide merged with the Portman last year, 1.2 million Portman members pocketed windfall sums of between £200 and £1,000.

[Paule]

Re: Nationwide, Deryshire and Cheshire to merge

The Press Release

Date issued: 8 Sep 2008

MERGERS OF NATIONWIDE WITH THE DERBYSHIRE AND THE CHESHIRE BUILDING SOCIETIES

Nationwide Building Society today announces that it will merge with The Derbyshire Building Society and The Cheshire Building Society, who will transfer into the Nationwide Group by way of two separate transactions. These are prudent and pre-emptive actions taken independently by the Boards of The Derbyshire and The Cheshire following the identification of financial issues faced by both Societies. The transactions represent an important step in maintaining a strong mutual sector in the UK, with Nationwide's pre-eminent position and financial strength providing a solid foundation for the future.

These transactions bring The Derbyshire and The Cheshire's combined circa 925,000 members the benefits and security of membership of Nationwide, the UK's largest building society, and create a society with assets totalling more than £191 billion and £122 billion of retail deposits.

Summary of Transactions

* Both The Derbyshire and The Cheshire separately and independently approached Nationwide as a prudent measure to ensure the financial strength and stability of each Society
* The Derbyshire has assets of £7.1 billion, 50 branches and 485,000 members. It expects to report an unaudited pre tax loss of £17 million for the half year to 30 June 2008 arising predominantly in its near-prime, sub-prime and commercial loan portfolios. These represent material financial uncertainties for The Derbyshire particularly in the current economic climate
* The Cheshire has assets of £4.9 billion, 45 branches and over 440,000* members. It expects to incur an unaudited pre-tax loss of £10.5 million for the half year to 30 June 2008 due to an exceptional £11.5 million impairment charge on a single secured commercial loan
* Nationwide has satisfied itself that The Derbyshire and The Cheshire's general reserves are sufficient to cover conservative fair value adjustments including current and expected future losses
* Nationwide's capital ratios are robust and well in excess of its peers, with Core Tier 1 at 8.1%; Total Tier 1 at 9.7%; and Total Capital at 12.4% as at 4 April 2008. These ratios are all forecast to increase during the current financial year as a result of retained trading profits and after allowing for the two mergers
* The mergers are to be concluded by way of separate Board resolutions of The Derbyshire, The Cheshire and Nationwide without the requirement for a member vote at a general meeting of any of the societies
* In order to preserve capital within the enlarged Nationwide for the benefit of its combined membership there will be no distribution to The Derbyshire or The Cheshire members
* Nationwide recognises the strengths of The Derbyshire's and The Cheshire's local franchises and will retain their brands and branch networks
* An Instrument of Transfer has been agreed with The Derbyshire and Heads of Terms have been agreed with The Cheshire
* The transaction with The Derbyshire is expected to conclude on 1 December 2008. The transaction with The Cheshire is expected to conclude before the end of the calendar year. Both transactions are subject to confirmation by the FSA and approval by the Office of Fair Trading (OFT).

Commenting on the mergers, Graham Beale, Nationwide's chief executive, said:

"The Derbyshire and The Cheshire have independently concluded that a merger with Nationwide is in the best interests of their savers and borrowers given the financial issues faced by both societies. The core member businesses of both societies are in good shape and have a better future as part of a larger organisation. 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.

"The mergers with The Derbyshire and The Cheshire provide an excellent opportunity for Nationwide to build on its strong position in the financial services sector by adding two attractive customer franchises creating an organisation with almost 15 million* members, around 1,000 retail outlets, £191 billion of assets and £122 billion of retail deposits.

"The mergers will further enhance Nationwide's position as the leading UK building society. Nationwide remains committed to mutuality and recognises that these transactions play their part in maintaining a modern and healthy mutual sector in the UK. We look forward to welcoming The Derbyshire and The Cheshire members to Nationwide as part of the UK's largest building society."

Graham Picken, chief executive of The Derbyshire, said:

"I am pleased that The Derbyshire has come to an agreement with Nationwide that assures the future for our savers and borrowers. The Board recognised a number of financial uncertainties facing The Derbyshire, and has taken this prudent and pre-emptive action in seeking a solution to secure the interests of our members over the long-term. I have every confidence that The Derbyshire members will benefit from being part of the enlarged Society."

Karen McCormick, chief executive of The Cheshire, said:

"We are pleased with the progress we have made at The Cheshire in building a progressive modern mutual organisation for our members. The core member business is strong. However, whilst we have performed resiliently, the unprecedented market conditions and poor economic outlook have led the Board to consider its strategic options. I am confident that our members will benefit from the strength of the combined organisation. It is pleasing that The Cheshire brand and branch network, together with its presence in the North West, are being retained through a merger which we believe will be in the best interests of our members."

Background to the transactions

Nationwide: Following separate and independent approaches from The Derbyshire and The Cheshire Boards, Nationwide agreed to evaluate the benefits of a merger with each Society. Nationwide has satisfied itself that the proposed transactions are in the long term interests of its members and will generate enhanced value over the medium term. The Board regards it as responsible and commercially beneficial to support the mutual sector in this way and to extend the franchise of Nationwide to include two regionally branded building societies.

The Derbyshire: Following the appointment of a new chairman and new chief executive in December 2007 and February 2008 respectively, the Board of The Derbyshire initiated a strategic review of the Society in conjunction with professional advisers. Following this review the Board of The Derbyshire identified that it would post an unaudited pre-tax loss of £17 million for the half year to 30 June 2008, with the potential for further future losses. These losses arise as a result of credit defaults predominantly within its near-prime and sub-prime residential mortgage portfolios (particularly in its acquired portfolios) and commercial loan portfolio. As a result, and especially given the current uncertain economic conditions, The Derbyshire's Board felt it was appropriate to consider its strategic alternatives. Having reviewed all options, the Board of The Derbyshire has determined that it is in the best interests of its members to take a definitive step by seeking a merger with Nationwide.

The Cheshire: The Cheshire has invested in its business to build a strong local franchise and its core member businesses have continued to perform resiliently. The Cheshire's pre-exceptional profit before tax for the half year to 30 June 2008 was £1 million. The deteriorating property market has resulted in an exceptional impairment charge, in the current year, of £11.5 million on a single secured commercial loan and an unaudited pre-tax loss after this exceptional item of £10.5 million. This in itself would not have affected the ability of the Society to operate successfully as an independent organisation. However, the Board is mindful of the current unprecedented market conditions, the impact of the credit crunch and the state of the UK housing market, all of which have made the outlook uncertain. As a result, the Board has carried out a review of The Cheshire's strategic options, which led to a proactive approach to Nationwide to discuss a possible merger. Once concluded, the merger will provide The Cheshire's members with the security and stability provided by the UK's largest building society.

Nationwide Trading Update

Despite the continued challenging environment, Nationwide's performance for the first four months of the financial year has been strong and is in line with the Society's expectations and the prior year's performance. Asset quality across all areas of lending remains strong. Additionally, Nationwide has recorded minimal impairment charges on its commercial loan and treasury portfolios in the first four months of the year.

The proportion of prime residential mortgages three months or more in arrears at the end of July 2008 was 0.31% (4 April 2008: 0.30%). The equivalent ratio for all residential lending was 0.38% (4 April 2008: 0.36%) significantly below the CML industry average of 1.33% as at June 2008 (1.21%, March 2008).

Financial Impact

Nationwide has a strong and high quality balance sheet with total assets of £179 billion and total capital of £9.5 billion as at 4 April 2008. Following the two transactions, the Core Tier 1 capital ratio will reduce by 34 basis points (bp), Total Tier 1 by 21 bp and Total Capital ratio by 16 bp. Nationwide expects to recover these reductions in the current financial year as a result of retained trading profits.

The Derbyshire has assets of £7.1 billion at 30 June 2008 including £1.4 billion of near-prime and sub-prime residential mortgage loan assets and £0.5 billion of commercial loan assets. The sub-prime and commercial loan books were closed to new business in March and May 2008 respectively. The Derbyshire's core residential mortgage business is sound and The Derbyshire has no commitments to buy further mortgage portfolios. All of the assets and liabilities of The Derbyshire will be adjusted to their fair value at the date of the merger. Nationwide is satisfied that The Derbyshire's general reserves are sufficient to cover conservative fair value adjustments including current and expected future losses on The Derbyshire's assets.

As at 30 June The Cheshire had assets of £4.9 billion, including a prime residential book, with excellent asset quality of £2.4 billion. The Society has limited exposure, of less than £0.15 billion to near-prime and sub-prime residential mortgage assets. Of its £0.6 billion commercial loan book, £0.3 billion comprises loans to registered social landlords. The balance is a diversified loan portfolio secured on commercial property assets. In accordance with accounting regulations, the assets and liabilities of The Cheshire will be adjusted to their fair value at the date of the merger. The Cheshire is strongly capitalised and Nationwide considers that The Cheshire's general reserves are sufficient to cover Nationwide's conservative fair value adjustments including current and expected future losses on The Cheshire's assets.

Members

The combined Society will continue to operate as a mutual building society, owned by and run for the benefit of its members. Nationwide has a membership totalling 14 million*, The Derbyshire has a membership of 485,000 and The Cheshire has a membership of over 440,000.

As part of the enlarged organisation, The Derbyshire and The Cheshire members will benefit from the security provided by Nationwide's scale and financial strength. The Derbyshire and The Cheshire brands and branch networks will be retained. Nationwide intends to develop these businesses further and ensure that both franchises continue to serve the needs of their respective local communities.

Nationwide has a long-standing track record of value creation for its membership, and estimates that members benefited by £690 million in the previous financial year as a result of better pricing, lower interest rates and lower charges.

Transaction structure

In order to ensure the mergers are completed as quickly as possible and following detailed discussions with the FSA, the mergers of The Derbyshire and The Cheshire will be facilitated under section 42B(3)(b) of the Building Societies Act (the Act). In relation to Nationwide, the FSA has given consent under section 94(5)(b) of the Act. As a result the mergers will proceed on the basis of Board resolutions of The Derbyshire, The Cheshire and Nationwide Boards. The Societies' Boards believe it is in the interests of all parties that the mergers complete as quickly as possible to avoid a period of prolonged uncertainty.

There will be no member vote. The transaction will not involve any distribution to The Derbyshire or The Cheshire membership. All eligible The Derbyshire and The Cheshire members will receive a 'Merger Notification Statement' outlining details of their respective mergers.

The mergers are subject to statutory confirmation by the FSA and approval by the OFT.

Board and operational structure

On completion of the mergers, the combined Society will be run by the current Nationwide Board, led by chairman, Geoffrey Howe, and chief executive, Graham Beale. The Directors of The Derbyshire and The Cheshire will agree to resign from their positions immediately before completion. Graham Picken and Karen McCormick will remain with the Society in non-Board roles for a period of up to 12 months to ensure an orderly transition. They will report to Tony Prestedge, Nationwide executive director of Group development.

Nationwide's existing head office in Swindon will remain the head office for the combined Society. It is expected that The Derbyshire's head office in Duffield and The Cheshire's head office in Macclesfield will be retained as operational service sites within the Nationwide Group.

The businesses of The Derbyshire and The Cheshire will continue on the effective date to operate under their respective current brands as separate trading activities of Nationwide. There are no plans to integrate The Derbyshire's or The Cheshire's member businesses with Nationwide's member business and the branch networks will remain. However, it is likely that some back office and central group functions of The Derbyshire and The Cheshire will no longer be required.

Nationwide will continue to manage down the non-conforming and commercial books owned by The Derbyshire and The Cheshire, and integrate them within the relevant divisions of Nationwide.

Timetable

A Merger Notification Statement will be issued to eligible members of The Derbyshire within 12 days of this announcement and a separate Merger Notification Statement will be issued to The Cheshire members within the period required by the Act (within 14 days of the instrument of transfer being entered into). There is no requirement for a general meeting of members of any of the societies, and members need take no action.

Members of each society, and other interested parties will have the right to make representations to the FSA with respect to the proposed merger. Details of how to make representations, together with the timetable, will be set out in the Merger Notification Statements that will be issued to all eligible members of The Derbyshire and The Cheshire.

Both transactions are expected to be concluded by the end of December 2008.

[Paule]

Re: Nationwide, Deryshire and Cheshire to merge

The Invester Presentation attached

[Paule]

Re: Nationwide, Deryshire and Cheshire to merge

Questions and Answers

Q - Why is Nationwide merging with The Derbyshire and The Cheshire, and what is the benefit to Nationwide's members?

A - These mergers with The Derbyshire and The Cheshire provide an opportunity for Nationwide to build on its strong position in the financial services sector by adding two strong regional brands, creating an organisation with almost 15 million members, around 1,000 retail outlets, £191 billion of assets and £122 billion of retail deposits.

Nationwide intends to develop the Derbyshire and Cheshire businesses further and we expect the mergers will benefit our own savers and borrowers in the medium term. Last year alone, we delivered an estimated £690m to our members in the form of better rates and fewer fees and charges than the high street banks for day-to-day services.

The mergers represent an important step in maintaining a strong mutual financial services sector in the UK, with Nationwide's continued capital strength providing a strong foundation for the future.
Q - Is Nationwide rescuing The Derbyshire and The Cheshire because they are in trouble?

A - The Derbyshire and The Cheshire are both going concerns with sufficient capital to cover their liabilities. However, given current market conditions and uncertainty, Derbyshire's and Cheshire's directors have decided separately to take pre-emptive action to provide greater stability and certainty for their members should such conditions deteriorate substantially going forward.

Having reviewed all options, the Boards of both The Derbyshire and The Cheshire determined separately that in the best interests of their members they should seek a merger with Nationwide.
Q - Will the enlarged Society be committed to remaining mutual?

A - Absolutely, we are very happy with our mutual status and continue to believe it to be in the best interests of our members. Nationwide, The Derbyshire and The Cheshire are committed to maintaining and growing a highly efficient mutual organisation that gives consumers a real alternative to the retail banks.
Q - Will I be able to vote on the mergers and will I get a merger bonus?

A - In order to ensure the merger is completed as quickly as possible it will be facilitated under sections 42B(3)(b) of the Building Societies Act in relation to The Derbyshire and The Cheshire and 94(5)(b) in relation to Nationwide. As a result the merger will proceed on the basis of Board resolutions of the Derbyshire, Cheshire and Nationwide Boards, rather than by a member vote. The Societies' Boards believe it is in the interests of their members that the merger completes as quickly as possible to avoid a period of prolonged uncertainty.

All eligible Derbyshire and Cheshire members will receive a 'Merger Notification Statement' outlining details of their respective mergers.

The mergers are subject to confirmation by the FSA and approval by the OFT.

In order to preserve capital within the enlarged Nationwide for the benefit of its combined membership there will be no distribution to Derbyshire's or Cheshire's members. Members of The Derbyshire and The Cheshire will benefit from the security of joining the UK's largest building society.
Q - What will the enlarged Society be called?

A - The name of the enlarged Society will be Nationwide Building Society.
Q - Will the names Derbyshire and Cheshire disappear?

A - No. The Derbyshire and The Cheshire will continue to operate under the Derbyshire and Cheshire names as separate trading brands of Nationwide.
Q - Will Nationwide customers be able to use Derbyshire's and Cheshire's branches and vice versa?

A - No. As a customer of Nationwide, you will not be able to access your accounts in Derbyshire's and Cheshire's branches, call centre or internet site. Likewise, Derbyshire's and Cheshire's customers will not be able to use Nationwide branches, call centres or internet site.
Q - What happens next?

A - If all proceeds to plan, we would expect these transactions to become effective in December 2008.
Q - Can you tell me more about The Derbyshire and The Cheshire?

A - You can find out more information by accessing Derbyshire's website and Cheshire's website.
Derbyshire Building Society - Its good to belong

Mortgages, Savings and Investments from Cheshire Building Society

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Re: Nationwide, Derbyshire and Cheshire to merge

Nationwide To Buy Rival Lender

Nationwide Says It Has Reached A Deal To Buy The Cheshire Building Society | Business | Sky News

Nationwide says it has reached a deal to buy the Cheshire Building Society.