Manchester Building Society agrees terms for merger with Newcastle counterpart

The boards of Manchester Building Society and Newcastle Building Society have agreed heads of terms to merge by way of a transfer of Manchester’s engagements to Newcastle.

The boards say they believe it is in their respective members’ best interests to complete the merger in a considered and timely way, to realise the benefits a merger would afford.

Manchester has not undertaken new lending since 2013, and faces uncertainty around its long-term future in the absence of a transaction.

A merger would see Manchester savers and borrowers benefit from increased product choice and interest rates that are the same as, or better than, their current ones. As members of the enlarged and expanding Newcastle they would also be part of a mutual which continues to grow strongly, and is currently the UK’s eighth largest building society.

Apart from the Manchester Building Society executive directors, all Manchester Building Society employees would have the opportunity to further their careers as a continuing part of a larger organisation, the boards say. The advantages to both societies of a merger include greater resilience and additional capital strength, which would enhance Newcastle’s growth strategy and its continued commitment to high levels of customer service and delivery of member value.

The prospect of retaining an operational Manchester base could provide additional opportunities for a pipeline of talent into the Newcastle group, which includes its significant subsidiary fintech business, Newcastle Strategic Solutions. As a leading provider of outsourced savings management platforms, the Solutions subsidiary employs more than 700 people.

Newcastle chief executive, Andrew Haigh, said: “The merger presents an opportunity for both our societies to come together in a way that truly benefits both sets of members. As a financially robust, purpose-powered business, the move supports Newcastle Building Society in delivering our growth strategy at greater scale and impact, and in a way that offers opportunity for members, and colleagues from both organisations.”

Chairman of Manchester, David Harding, said: “Manchester’s board strongly believes that this merger is in our members’ best interests. Our members will become part of a larger, financially robust society that can offer a range of products and services we are unable to match as a standalone entity whilst providing staff at Manchester with long term opportunities within the Newcastle Building Society and group.”

Since 2013, the Manchester board has been de-risking and shrinking Manchester’s balance sheet with no new mortgage lending being undertaken.

While Manchester’s current capital and liquidity position is regulatory-compliant, the Manchester board believes Manchester lacks the scale and resilience to endure a major financial or economic stress without raising additional capital.

The Manchester board’s current projection is that the society would, as a standalone entity, have recurring losses which will deplete capital reserves each year. Accordingly, the Manchester board has considered a range of strategic options and concluded that the best interests of members would be served by a merger with a larger, stronger building society.

It is expected that all eligible members of Manchester will be sent a Merger Notification Statement with further details of the merger around the end of March 2023.

The merger will not involve a distribution to the members of either Society.

Manchester announced the potential for a merger last August.

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.

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.