Skipton Building Society to merge with Chesham

SKIPTON Building Society, which has seen annual profits increase to £63.5m, is to merge with Chesham Building Society to create a mutual with more than £15bn of assets.

The merger will see Skipton offering its products to 21,000 more members and will create a Society with a 92-strong branch network.

The merger was announced as Skipton reported pre-tax profits for the year ended December 31, 2009 up by £41m to £63.5m.
 
Group pre-tax profit from continuing operations went up by £100,000 to £18m.

Subject to confirmation by the Financial Services Authority and approval by Chesham members, the merger is expected to become effective on June 1.

Chesham already has a working relationship with Skipton as it uses its IT platform provided by a subsidiary within the Skipton Group.

Its core tier one ratio – a key measure of financial strength – went up by 9% to 9.4%.

Retail balances increased by 29% to £10.5bn while its saving membership went up by 145,000 to 700,000.

Group mortgage assets increased by £1.3bn to £10.7bn, which it said was mainly due to its merger with Scarborough Building Society last March.

The group also reduced its reliance on wholesale funding as 79% of funding now comes from retail balances, compared with 69% previously.

The merger with Scarborough boosted Skipton’s assets by £2.6bn last March, while the acquisition of £723m of retail savings from Capital One by its Castle Money brand brought over 45,000 new members on board.

Net interest income reduced from £86m to £53m, which it said was due to operating in a low interest rate environment.

The group said its estate agency business, Connells, produced an “exceptional” trading performance, recording a profit of £54.1m, compared with £10.4m the previous year due to improved trading conditions and tight cost control.

The sale of its credit and marketing services subsidiary, Callcredit Information Group, in December boosted profits by approximately £40m and increased capital.

Chief executive David Cutter said: “Skipton has coped well over the past year, achieving significant year-on-year improvements in our financial performance.

“We have increased our total group profits and boosted our capital in a year that will be remembered for the impact of the worst financial crisis in almost a century.

“Our success amid these extreme trading conditions reaffirms the robustness of the Group’s diversified business model.

“However, the Society itself experienced a material reduction in net interest margin. While the group fulfilled one of its purposes by providing a supportive financial cushion, we have taken prudent action to widen the margin in the long-term best interests of the Society.

“In addition, uncertainties remain regarding the economy; the Government’s finances; the impact of an historic Quantitative Easing programme, and the distortions in the UK savings market. We therefore remain vigilant.”

Mr Cutter said its planned increase in its mortgage Standard Variable Rate (SVR) from 3.5% to 4.95% was necessary given the “current, exceptional economic environment”.

““There is a growing risk that any GDP recovery will be anaemic and slow,” he added. “Our members can rest assured that Skipton will continue to take whatever proactive steps are required to ensure their Society’s continued prosperity as a leading independent UK mutual, in their long-term best interests.”

Skipton has committed to retaining Chesham’s three branches for 12 months from the date of merger.

Adam Bennett, of law firm Addleshaw Goddard, advised Chesham on the merger.

Mr Cutter said: “We have always made it clear that we would consider further merger activity where it is in the best interests of our members. We look forward to welcoming Chesham’s  members on board and believe this union will provide positive product and service benefits for the combined customer base of the enlarged Society.”