Britannia and Co-op may merge in April

hstudent · 21 January 2009 at 11:47AM

There will be no windfall for customers, but Britannia have said customers will benefit from higher savings interest and an increased amount of loyalty bonus.

Primrose · 21 January 2009 at 11:50AM

Interesting. I hadn't picked that one up. Who are in trouble? Britannia or the Co-op? Britannia's interest rates are pretty abysmal and the loyalty bonus for savers has a maximum deposit level of £20,000 so any improvements will be welcome.

y0z2a · 21 January 2009 at 12:22PM

Why will there not be a customer windfall?

Thanks,

/y0z

Stuart_W · 21 January 2009 at 12:42PM

Hi. Neither are in trouble.

This is a merger of two mutuals to create a stronger one.

There is no windfall because one is not being "bought out" by the other. One mutual organisation (Britannia) is asking it's members if they agree to joining The Co-Op Bank, which in turn is owned by The Co-Operative Group. Mr Richardson from Britannia, who will head up the enlarged banking group, has said that all Britannia members would become Co-Operative Group members.

Therefore, Britannia members are not "selling" their ownership to a bank, or converting that ownership into shares, they are remaining mutual members.

As Co-operative Group members, there is an annual dividend (share of profits) based on your business within the group:
1 point for every £5 held or borrowed on average in Co-operative Bank current or credit card accounts
1 point for every £5 outstanding on a Co-operative Bank loan
1 point for every £10 held on average in a Co-operative Bank savings account
1 point for every £20 outstanding on a Co-operative Bank mortgage
1 point for every £5 borrowed on average in Co-operative Bank flexible loan accounts
500 points for holding a Co-operative Insurance (CIS) home or motor insurance policy
For the trading year 2007, 1 point = 2.63p dividend
So a £100,000 mortgage paid £131.50 cash dividend for 2007

All of this, of course, depends how members vote at the members' meeting in April.

Hope that helps a little.

opinions4u · 21 January 2009 at 12:44PM

y0z2a wrote: »

Why will there not be a customer windfall?

Thanks,

/y0z

Hazarding a wild guess, I'd say Britannia has exposed itself to more than its fair share of poor quality lending and is experiencing significant losses on chunks of its operations.

This basically means that the size of its reserves are being reduced, which in turn means that there is simply no value in the business - if it had a share price it would be worth virtually nothing (similar to the banks).

As the inherent value of a mutual building society is what allowed members of Halifax, Bradford & Bingley etc to receive "free" shares, and there is now no value, then members receive precisely that. Nowt.

Putting it in to perspective, members of the Halifax typically received 200 shares worth around £1400. Those shares a few minutes ago had become 110 Lloyds shares worth about £44.

And it's probably more prudent to keep that within the business to keep it afloat, rather than pay it out to members and then go bump.

When building societies have merged in the past, members of the smaller society have usually received a windfall payment in the low £hundreds. More recent mergers have been because of financial difficulties resulting in no payment.

Linky Thing
"The society's profits dipped sharply over the first half of this year (2008): they fell £31.2m to £50.5m, mainly as a result of mounting mortgage arrears.
It should pull through due to the large proportion of its funding sourced from members rather than expensive inter-bank lending sources. It has 245 branches and 2.7m savers.
However the society has a relatively high level of wholesale funding at 34%: that's funding sourced from the money-markets and not members.
Britannia also saw a rise in the number of its customers behind on their mortgage payments in the first half of 2008. The number of mortgages in arrears for 12 months or more numbered 145 in June 2008, up from 84 in December 2007. The society says this relates to loans it bought from GMAC-RFC, which it cherry-picked and which are now turning a profit."

Stuart_W · 21 January 2009 at 12:54PM

opinions4u wrote: »

More recent mergers have been because of financial difficulties resulting in no payment.

This potential merger is different. It's not a white flag " help" merger out of some emergency or necessity.

After all, if the members vote NO, it won't happen. The mutual member-ownership and control is not being questioned in this process and members can decide what to do.

As far as the finanicial position goes...

Combining CFS, part of the world’s biggest consumer co-operative, with Britannia, the UK’s second biggest building society, will create a business with £70 billion of assets, nine million customers, 12,000 employees, more than 300 branches and 20 corporate banking centres. The business will be strongly capitalised, with a pro forma Tier 1 ratio of 9.8% as at 31 December 2008 (calculated on the same basis as if the combined businesses remained standalone).

Source: http://www.co-operativebank.co.uk/servlet/Satellite/1224053763488,CFSweb/Page/Bank-CustomerServices

A helpful Q&A page has been put up by the Co-Op bank which addresses a number of questions, including the Windfall issue:
http://www.co-operativebank.co.uk/servlet/Satellite/1232436743380,CFSweb/Page/Bank-CustomerServices

Milarky · 21 January 2009 at 1:11PM

Am I likely to get a windfall payment?
No. The combined business will be a mutual society founded on strong ethics and values. This will mean that our members continue to own the business and have rights to share its value and participate in its decision-making - they won't be giving anything up. The value our members own in Britannia is carried forward into the new business so there is no "windfall" payment.

Not applicable to Britannia members though - they are giving something up - their independence. Will there ever be a vote if Cooperative bank opts to merge again in future? No - because by then Britannia membership simply converts to coop 'membership' - and the coop members aren't getting a vote on this because they aren't entitled in the same way that members of a building society usually are. So this is a vote to end the right to vote - and for what tangible benefit exactly? The above 'explanation' is an elision of the fact that 'bonuses', whilst 'windfalls' in the general sense are also customary distributions that 'celebrate' the business's own 'mutual' logic - and strength; that they have no shareholders (to pay) but do have members (whom they might pay) in the equivalent position. A 'windfall' is also used to describe a particular payment (or gift in shares) 'in compensation' for loss of mutual status. But a 'bonus' could be payable under any circumstances.

In other words, there is noting magical about a mutual; it is still a 'capitalist' (sic) organisation - dedicated to the extraction of 'surplus value'. The only difference is that is can try to lay a claim that it does so 'ethically'.

[I wonder if George Orwell ever wrote about banks?]

julliff · 21 January 2009 at 1:16PM

Portman customers got a cash payout when they "merged" with Nationwide.

cheggers · 21 January 2009 at 1:19PM

Will I now loose my annual Members reward cheque from the Britannia now??

opinions4u · 21 January 2009 at 1:39PM

julliff wrote: »

Portman customers got a cash payout when they "merged" with Nationwide.

They did. But then again, members of the Cheshire and Derbyshire didn't see a penny when they merged with Nationwide.

The key difference is the value in the business - Portman had value, the others didn't.

While appreciating that a Co-op/Britannia merger is different to a Nationwide/Cheshire merger, there is no doubt that Britannia would be seeking to remain independent if it didn't have a combination of funding issues (wholesale markets seizing up) and difficulties with its acquired and own mortgage books.

hstudent · 21 January 2009 at 1:45PM

When you say "Windfall" do you really mean that or just mean something like an extra 1% interest?

Britannia and Co-op may merge in April

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