Nationwide swoops on battered rivals

bristolleedsfan

Gorgeous_George wrote: »

I think some people are more concerned about 'their' windfall than the future of the banking system.

GG

And who were Cheshire BS, Board Of Directors "more concerned about" 2.5 years ago. :huh:


http://findarticles.com/p/articles/mi_qn4158/is_20060331/ai_n16200420

http://www.thisismoney.co.uk/news/article.html?in_article_id=407575&in_page_id=2

martinman3

mikbruin wrote: »

2) Derbyshire BS is 150 years old. It is having a bad year but it has assets of £7000,000,000. To give it away is madness. Cheshire is really quite a good business, it just had a bad deal go bad.

It may have large assets but it also has equally large liabilities. Once a society makes a loss it is just a question of how long the reserves would last if the savers asked for their money back. The answer is not long.
Perhaps the losses still to come would wipe out the reserves as well.

If you look at the 2006 accounts for Derbyshire here, the only one available to me as non-member, it shows that they made a £16m profit, held £3.5bn on deposit and only had reserves of £245m. The profit as a percentage of mean total assets was 0.30%.

This year, 2008, their profit has already been wiped out in the first 6 months. Only the board know how many of their mortgage customers are in arrears or negative equity. After Northern Rock, if the losses had been announced instead of arranging the merger with Nationwide there would have been queues at the branches by those with more than £35k on deposit and that £245m would not have lasted very long.

It is amazing how an organisation could collect £3.5bn from savers, have so little in reserve and make such a small profit.

The Cheshire accounts for 2006 here show a tiny profit of £10.3m, savers deposits of £2.9bn and reserves of £180m. The profit as a percentage of mean total assets was 0.22%.

p.s. At least one other large building society has a profit percentage figure lower than these two. :eek:

Perhaps their problem was that they were too kind to their mortgage customers, the profit from them being too small, which led them into taking risks in other areas to maintain/increase profit levels.

As a Nationwide member I just hope that the board of these two societies personally get as little as possible out of this deal as they made some very stupid decisions.

mikbruin

martinman3 wrote: »

It may have large assets but it also has equally large liabilities. Once a society makes a loss it is just a question of how long the reserves would last if the savers asked for their money back. The answer is not long.
Perhaps the losses still to come would wipe out the reserves as well.

If you look at the 2006 accounts for Derbyshire here, the only one available to me as non-member, it shows that they made a £16m profit, held £3.5bn on deposit and only had reserves of £245m. The profit as a percentage of mean total assets was 0.30%.

This year, 2008, their profit has already been wiped out in the first 6 months. Only the board know how many of their mortgage customers are in arrears or negative equity. After Northern Rock, if the losses had been announced instead of arranging the merger with Nationwide there would have been queues at the branches by those with more than £35k on deposit and that £245m would not have lasted very long.

It is amazing how an organisation could collect £3.5bn from savers, have so little in reserve and make such a small profit.

The Cheshire accounts for 2006 here show a tiny profit of £10.3m, savers deposits of £2.9bn and reserves of £180m. The profit as a percentage of mean total assets was 0.22%.

p.s. At least one other large building society has a profit percentage figure lower than these two. :eek:

Perhaps their problem was that they were too kind to their mortgage customers, the profit from them being too small, which led them into taking risks in other areas to maintain/increase profit levels.

As a Nationwide member I just hope that the board of these two societies personally get as little as possible out of this deal as they made some very stupid decisions.

I think you make some good points. Remember though the core purpose of a mutual is not to make stacks of cash, but it is to be secure,prudent, and have some legs to survive the test of time. Something the management clearly have failed at. Giving good value they did ok on. I hadn't realised how
many sub prime loans they have.(derbyshire that is)
I have accounts with 45 of the remaining mutuals, a strategy I entered into 10 years ago. it has paid off quite well but i didn't envisage they would be given away though!
Alliance and leicester is a basket case, but abbeysantander are not getting it for free!
Shame Nationwide isn't a plc you could buy shares in, On reflection i still think they must think its Christmas come early.

mikbruin

From Chehires T&c's

29.2 WHAT IS A MUTUAL BUILDING SOCIETY?

Cheshire Building Society is a mutual institution whose members
are its customers. Mutual status means that, unlike a limited
company, the Cheshire is responsible to its own customers/
members, who can influence the Society’s affairs by exercising their

voting rights.

Yeaaaah right!

cheggers

The more Societies Nationwide take over will lead to one day them deciding to go plc.

It's bound to happen, now that will be a decent windfall.

As for my 20+ buidling Socieites accounts, I'll be reviewing my interest rates then may be shutting some down. I think it's now the end to any windfall for the next 10 years:mad: :mad: :mad:

martinman3

From the Cheshire BS website

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.

The one-off charge of £11.5m provides a good excuse for the merger but the real reason is the profit before tax for the half year was only £1m. It seems that the profit made from mortgages is falling fast, probably because the money they need to borrow is too expensive to allow their mortgage products to be competitive. They need to cover their outgoings which from the figures I have from 2006 are £35m just to run the business.

Whatever is being said Nationwide will be cutting their admin costs, probably encouraging Cheshire borrowers to re-mortgage to Nationwide, closing branches, and making backoffice staff redundant.

PremierFella_2

martinman3 wrote: »

Whatever is being said Nationwide will be cutting their admin costs, probably encouraging Cheshire borrowers to re-mortgage to Nationwide, closing branches, and making backoffice staff redundant.

...which is the reason why Nationwide should not have been gifted the two societies. It is questionable whether the regulator should be forcing the merger in this way (I think it is probable that if Northern Rock had not happened, both societies would have been trading independently for many years to come without significant issue).

Whilst there are obvious specific issues with these two, this sets a precedent and much the same argument about rising funding costs, risk of retail deposit withdrawals and rising mortgage arrears could be used for pretty much ANY of the smaller building societies. Hence building society members ultimately have even less say in practice in the running of their societies than was previously the case. I had foolishly assumed that solvent societies would be allowed to choose their own path, with the regulator only stepping in if management was clearly not acting responsibly and in the best interests of members of the society. Now it seems any society could at any time find the regulator strongarming* them into mergers that may not be in the best interests of members without member votes and without the society being under any threat in the short term of insolvency.

(* I do not question the validity of reports suggesting that both societies were actively entering into merger discussions in recent months, but the timing and nature of the recent announcement appears to indicate that neither society has freely chosen this Nationwide merger option.)

Milarky

PremierFella wrote: »

this sets a precedent and much the same argument about rising funding costs, risk of retail deposit withdrawals and rising mortgage arrears could be used for pretty much ANY of the smaller building societies

Good point!

MarkyMarkD

edwinac wrote: »

What on earth is a British building society doing purchasing dodgy sub-prime loans from overseas?

Worse still, those loans were originated by a desperate sector of the US economy which insiders have warned for some years is an industry "sliding into bankruptcy".

You are getting a bit carried away here, edwinac. Derbyshire bought UK-based loans from GMAC, not US-based ones.


As a separate comment, it can be argued fairly convincingly that it's precisely because of the "mutuality is good" argument that societies have, in the last 20 years, reduced their profit margins and therefore the growth in their reserves to a minimum level.

If the mutuals had continued to operate as they were doing before Abbey, Halifax, A&L et al converted, rather than reducing profits in their attempt to prove that mutuality is best, they wouldn't be in the dodgy position they are now.

martinman3

PremierFella wrote: »

...which is the reason why Nationwide should not have been gifted the two societies. It is questionable whether the regulator should be forcing the merger in this way (I think it is probable that if Northern Rock had not happened, both societies would have been trading independently for many years to come without significant issue).

Whilst there are obvious specific issues with these two, this sets a precedent and much the same argument about rising funding costs, risk of retail deposit withdrawals and rising mortgage arrears could be used for pretty much ANY of the smaller building societies. Hence building society members ultimately have even less say in practice in the running of their societies than was previously the case. I had foolishly assumed that solvent societies would be allowed to choose their own path, with the regulator only stepping in if management was clearly not acting responsibly and in the best interests of members of the society. Now it seems any society could at any time find the regulator strongarming* them into mergers that may not be in the best interests of members without member votes and without the society being under any threat in the short term of insolvency.

(* I do not question the validity of reports suggesting that both societies were actively entering into merger discussions in recent months, but the timing and nature of the recent announcement appears to indicate that neither society has freely chosen this Nationwide merger option.)

I suggested that borrowers would be moved to Nationwide products, possible redundancies etc because they are both currently a liability. No-one knows what the losses will be by Dec 2008 and Nationwide has a duty to its members not to waste their money. This is a better outcome than staying independent and watching their reserves being depleted followed by a run with queues at the branches.

The accounts for Cheshire are up to Dec 2007 and we do not know what has happened since then. I suspect that the situation is even more desperate than the last accounts show. I assume that the accounts ending Dec 2008 for these two societies will appear together with the Nationwide's eventually.

I agree with you that in normal times they should be able to keep going with just a small profit and I am confident that the remaining societies which have not taken stupid risks will survive.