The fate of Chelsea Building Society is decided this week...

Mithos

The fate of Chelsea Building Society is decided this week...

(I know its a daily mail link, but regardless they will be announcing their future plans this week, so just using it as a jumping board to give anyone some background information)

http://www.dailymail.co.uk/money/article-1231681/JEFF-PRESTRIDGE-Chelsea-jump-direction.html


I would be very disappointed if they mergered and lost its branding as I've been with them for many years and have always thought it very powerful, along with one of the best services I've received from any company around. At least if it is with Yorkshire or Coventry it will mean I'm still protected by the 50k Scheme so no need to shuffle funds around.

What does everyone else think will happen?

melbury

If there is a merger do you think there will be any payout for existing Chelsea customers?

I have had an account with them for years which I opened when everyone was on the carpetbagger bandwagon. However, I have hung in there, so it would be nice if there was some kind of payout.

scott_lithgows

I find it hard to believe that the British people put their cash into Spanish and Australian banks but dont support their local Building Society.

Chadsman

It looks like something is afoot... and not just 12 inches. They have been leant on by the FSA for a while now having made some hefty losses. If they are forced into a merger the chances of anything more than a token payment seem to be negligible.

RayWolfe

As an owner of a building society would you expect to have to hand over money to stop them becoming insolvent? If they are merging to prevent insolvency, why would you expect them to pay you?

opinions4u

melbury wrote: »

If there is a merger do you think there will be any payout for existing Chelsea customers?

In the current environment the clouds and the cuckoos are inland.

I have had an account with them for years which I opened when everyone was on the carpetbagger bandwagon. However, I have hung in there, so it would be nice if there was some kind of payout.

Nice, but not realistic.

melbury

No I don't suppose it is very realistic in the current climate - never mind. I wonder who will take them over.

Mithos

RayWolfe wrote: »

As an owner of a building society would you expect to have to hand over money to stop them becoming insolvent? If they are merging to prevent insolvency, why would you expect them to pay you?

I'm obviously a bit naive, but I've never understood how a BS can go "bust" or become insolvent.

Surely if they need funds they could increase the rates they offer savers, or increase their mortgage rates so people are more likely to redeem their mortgage and convert an asset into liquid funds for use.

I know thats a really simple way of looking at it, but as above don't really understand it. Can anyone explain?

Jonbvn

Mithos wrote: »

I'm obviously a bit naive, but I've never understood how a BS can go "bust" or become insolvent.

Because a lot of them started getting money from the markets rather than savings.

RayWolfe

Mithos wrote: »

I'm obviously a bit naive, but I've never understood how a BS can go "bust" or become insolvent.

As above, because they are borrowing from "the market" and cannot get those borrowings replaced by "the market" and it is too much to get from savers quickly.
They are paying their directors too much.
They have "invested" in lavish head offices.
They have foolishly "invested" in some very strange instruments.
They have lent too much money to people who cannot repay.
Apart from that, your point is well made!

agsnu

Mithos wrote: »

I'm obviously a bit naive, but I've never understood how a BS can go "bust" or become insolvent.

Surely if they need funds they could increase the rates they offer savers, or increase their mortgage rates so people are more likely to redeem their mortgage and convert an asset into liquid funds for use.

I know thats a really simple way of looking at it, but as above don't really understand it. Can anyone explain?

Well, if the difference between the interest they get from mortgages and the interest they pay to savers gets squeezed too much, they don't make any money - they have to pay out too much money in interest to savers, staff costs, upkeep of their branches, fees to the FSA, etc etc and then they can't cover their costs. So that's one way - they can just run out of cash.

Then there's the high level looking at the balance sheet approach. They have assets (all those loans they've made), liabilities (all those savings balances), and the difference between those is equity - just like any other company (except that the equity is owned by the members, not shareholders). So, when all those dodgy commercial property loans and poor quality residential mortgages start going bad, the overall amount they expect to recover from their assets goes down - but their liabilities wont' change.

If the difference between assets and liabilities becomes too small (or becomes negative), the building society is insolvent.

Getting in funds by offering high rates can help deal with the first one of those - but only in the short term (in a sense you're making the underlying problem worse), but it won't help the second.

Trying to force people to redeem their mortgages only works to a certain extent - you'll get a lot of cash in potentially, but you'll be left with all the people who can't remortgage (because they don't have much equity, or because they're poor credit risks, etc). And hiking their rates will just make them even more likely to default.