Building societies to merge

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The deal, which should be completed by the first quarter of next year, will create a top five building society with around 860,000 members and £16 billion of assets.

But in a bid to preserve the capital reserves of the enlarged group, members of the two societies will not receive a windfall.

The current difficult trading conditions have had a substantial impact on Scarborough's profits and led to a weakening of its capital position.

The group's board was also concerned that continuing house price falls and the impending recession in the UK could lead to an "unacceptable reduction" in its capital resources, causing it to approach the Skipton as its preferred merger partner.

John Carrier, chief executive of Scarborough Building Society, said: "We have been in talks with Skipton for some time and have now reached an agreement to merge. A merger of the societies will create a much larger, stronger business in North Yorkshire which offers real advantages to both organisations and their members going forward."

The two societies are well matched, having similar business models and a strong geographical fit.

The enlarged society will retain a significant presence in Scarborough and no compulsory redundancies are planned. It will also keep a branch in all of the towns where the Scarborough is currently represented and the group's purpose-built head office in Scarborough will continue to be a key operational centre.

The merger will proceed on the basis of a board resolution, meaning that the issue will not be put to the vote of members of either society. But it will still need to be confirmed by the Financial Services Authority and Office of Fair Trading.

Under the terms of the deal, all Scarborough borrowers on the group's standard variable rate, which is currently 7.24%, will move to Skipton's SVR, which is currently 6.45%. Savers with Scarborough will also have their accounts moved to the enlarged society, where they will have similar or better terms and interest rates.