Coventry Building Society confirms merger plans
Coventry, the third largest building society in the UK, has confirmed plans to merge with smaller rival Stoud & Swindon, to create a 91-strong branch network across the Midlands and the South West.
The combined mutual would also boast 1.5 million members and assets of over £21 billion.
The merger, which is still subject to the approval by Stroud & Swindon’s members as well as the Financial Services Authority, is expected to become effective on 1 September 2010.
Although the enlarged society will be called Coventry Building Society, the plan is to retain the Stroud & Swindon name as a separate brand.
Full details of the merger will be mailed to Stroud & Swindon members in mid-May, with eligible members invited to vote at a special general meeting on 16 June.
David Stewart, chief executive of Coventry Building Society, says: “I believe that the merger with Stroud & Swindon will help us build on recent successes and bring the benefits of our prudent and member-focused approach to a wider membership.”
It is expected that approximately two thirds of a total of 251,000 Stroud & Swindon savings accounts will see interest rates improved following the merger to match equivalent products offered by Coventry.
In addition, mortgage borrowers on the smaller society’s standard variable rate (currently 5.99%) could see their mortgage payments reduce as they’ll be moved Coventry’s SVR (currently 4.74%).
John Sutherland, chief executive of Stroud & Swindon, says: “We believe that Coventry’s commitment to long-term member value, fairness, strategic prudence and local communities, provides Stroud & Swindon members with the best possible future. We strongly recommend Stroud & Swindon members to vote in favour of the merger.”
Stroud & Swindon has 265,000 members and holds just under £3 billion in assets while Coventry has 1.2 million members and a 48-strong branch network across the Midlands.
Stroud & Swindon recorded a loss of £3.4 million in 2008. Meanwhile, last month, Coventry reported pre-tax profits had more than doubled in 2009 to £56.2 million.
The move follows the tie-up between Skipton Building Society and its loss-making rival Chesham, which was announced back in February, as another wave of consolidation ripples through the sector.
Last year, Britain's second largest mutual Yorkshire Building Society merged with loss-making rival Chelsea. Meanwhile, Nationwide - by far Britain's biggest building society - has stepped in with takeovers of the Cheshire and Derbyshire building societies.
Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.