Two societies merge with Nationwide

The Cheshire and Derbyshire building societies racked up losses in the first half of this year and faced increased uncertainty because of the current turmoil in lending markets.

The Nationwide denied that it had been forced into the mergers by the Financial Services Authority and insisted it should not be seen as the "lender of last resort" for the building society sector.

However, it argued it was important to maintain a healthy mutual sector and said it was in a "unique position", given its size, to offer support. The mergers should be completed by the end of the year after the Nationwide used special powers in the Building Societies Act to enable it to complete the process without the need for a vote by members of the two societies.

The lender, which merged with the Portman last year, will have almost 15 million members, around 1,000 outlets, £191 billion of assets and £122 billion of retail deposits following the mergers.

Nationwide intends to retain the brands and branch networks but warned some back office and central group functions of the two societies will no longer be required. The Derbyshire, which is the UK's ninth biggest building society, employs 470 people in head office functions while the 11th biggest, Cheshire, has 350.

The condition of the two lenders will mean that almost one million savers and borrowers of the societies will not receive pay-outs from the Nationwide.

Both groups approached the Nationwide to consider deals following the identification of financial issues.

The Derbyshire made first half-year losses of £17 million, reflecting its exposure to sub-prime and commercial loans. Around £1.4 billion of its £7.1 billion in assets are in near-prime and sub-prime mortgage loans, with £500 million in commercial loans.

The Cheshire has little sub-prime exposure but sank to a £10.5 million first half loss after the deteriorating property market resulted in a one-off write-down on a single commercial loan.