Manchester Building Society in talks over possible takeover by Newcastle society

Manchester Building Society is in talks regarding a possible takeover by Newcastle Building Society.

It announced on the London stock exchange this afternoon (August 8) that it has entered into an exclusivity agreement with the Newcastle business.

But even if the proposed deal was approved, the earliest any merger could be completed is likely to be mid-2023.

The announcement today said the two parties are exploring the possibility of a merger, by way of a Transfer of Manchester Building Society’s Engagements to Newcastle Building Society as provided for in the Building Societies Act 1986.

No formal commitment to proceed can be made until all appropriate due diligence investigations are completed, they said.

On the completion of that due diligence, the boards of both societies would then need to conclude that the merger is in the best interests of their respective members.

Only then would the process of obtaining the formal legal and regulatory approvals begin.

The Manchester society said discussions are at an early stage and, as such, there can be no certainty that any merger will occur, nor as to the terms or timing of any such merger.

A merger, or takeover, would draw a close on a turbulent few recent years for Manchester Building Society after its protracted legal case with its former adviser, Grant Thornton.

The organisation, based in Portland Street, began its legal action against Grant Thornton in 2013, claiming negligent advice from the adviser led to it closing out its long-term swaps, which caused a multimillion-pound loss and meant it had to source emergency funding.

In 2018 the High Court awarded the society just £315,345, plus interest, of its original £49m legal claim against Grant Thornton.

In May that year the society was told it would have to pay almost £2m in court costs, raising concerns for its long term prospects.

There were subsequent appeals, and in October 2020, the Supreme Court heard the society’s latest appeal. A seven-judge panel unanimously determined that the losses suffered by the society were within the scope of Grant Thornton’s duty and awarded it £21.8m

In February this year Manchester Building Society reported a huge increase in annual profits, on the back of its successful legal action.

Total operating income for the 12 months to December 31, 2021, was £19.44m, compared with £7.022m the previous year.

Income included £14.272m of legal damages and interest.

The pre-tax profit for the period was £20.837m, against a pre-tax loss of £344,000 in 2020.

Newcastle Building Society has around 336,000 members and 31 branches. As at December 31, 2021, its total assets were £4.9bn making it the eighth largest building society in the UK.

Manchester Building Society has approximately 11,000 members and no branches. As at December 31, 2021, its total assets were £200m making it the 41st largest building society in the UK.