http://www.teletext.co.uk/finance/moneyadvice/default.aspxen-gbMon, 8 Sep 2008 13:05:40 GMThttp://www.teletext.co.uk/images/Logo64x64.gifhttp://www.teletext.co.ukThe merger of Nationwide with smaller mutual rivals Cheshire and Derbyshire building societies is a further sign financial market volatility continues to have a major impact on UK lenders.<img src="http://feeds.teletext.co.uk/~r/news/finance/moneyadvice/~4/386725234" height="1" width="1"/>
The firms are to join with the UK's largest building society after coming under pressure from the credit crunch.

However, society members hoping for windfall payments as a result of the tie-up are to be left disappointed.

The merger of Nationwide with Cheshire and Derbyshire building societies came after the mutuals approached the firm.

Both groups had identified "financial issues" Nationwide said, and are on course to report losses for the first half of this year.

Derbyshire's £17m deficit reflects exposure to sub-prime and commercial loans while a one-off write-down has seen Cheshire fall £10.5m into the red.

The building society tie-up will create a business with almost 15 million members and 1,000 retail outlets.

The combined company will have total assets of more than £191bn and retail deposits totalling £122bn.

The Derbyshire and Cheshire mergers will not be subject to votes by members of the two societies and are set to be completed by the end of the year.

Nationwide has pledged to retain the brands and branch networks but will not be making any windfall payments.

The move contrasts with a payout received by Portman Building Society members last year when the mutual was taken over by Nationwide.

Nationwide chief executive Graham Beale said: "Derbyshire and Cheshire have concluded that a merger is in the best interests of savers and borrowers."

He added that the core parts of the societies are in good shape and said Nationwide is in a unique position, due to its large size, to offer support.

It comes after Nationwide benefited from savers switching money into its accounts from banks and small mutuals.

Darren Cook, from comparison site Moneyfacts, said the decision to retain the Derbyshire and Cheshire brands is a positive sign for the savings market.

"This is a different scenario from the Portman deal which saw deals removed from the market almost overnight."

He added that Derbyshire and Cheshire building societies have previously offered some better rates to savers than Nationwide to raise capital.

Steve Williams, head of building societies at Deloitte, said more deals could follow in the wake of the Cheshire and Derbyshire tie-ups.

"The impact of market circumstances, difficulties in raising new capital and the cost of complex regulation all fall disproportionately on smaller firms.

"We should expect a few more deals, although it will be a trickle rather than an avalanche."

Deloitte's Steve Williams says mutuals have been more resilient than other lenders due to their structure.

The size of their branch network has enabled societies to fund themselves largely from retail deposits rather than from wholesale markets.

He said they have also been able to offer better saving and borrowing rates as they do not have to pay a dividend - in contrast to listed banks.

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