Mergers of Nationwide with The Derbyshire and The Cheshire

Nationwide Building Society has announced that it will merge with The Derbyshire Building Society and The Cheshire Building Society, who will transfer into the Nationwide Group by way of two separate transactions.

These are prudent and pre-emptive actions taken independently by the Boards of The Derbyshire and The Cheshire following the identification of financial issues faced by both Societies. The transactions represent an important step in maintaining a strong mutual sector in the UK, with Nationwide's pre-eminent position and financial strength providing a solid foundation for the future.

These transactions bring The Derbyshire and The Cheshire's combined circa 925,000 members the benefits and security of membership of Nationwide, the UK's largest building society, and create a society with assets totalling more than £191 billion and £122 billion of retail deposits.

Summary of Transactions

Both The Derbyshire and The Cheshire separately and independently approached Nationwide as a prudent measure to ensure the financial strength and stability of each Society

The Derbyshire has assets of £7.1 billion, 50 branches and 485,000 members. It expects to report an unaudited pre tax loss of £17 million for the half year to 30 June 2008 arising predominantly in its near-prime, sub-prime and commercial loan portfolios. These represent material financial uncertainties for The Derbyshire particularly in the current economic climate

The Cheshire has assets of £4.9 billion, 45 branches and over 440,000 members. It expects to incur an unaudited pre-tax loss of £10.5 million for the half year to 30 June 2008 due to an exceptional £11.5 million impairment charge on a single secured commercial loan

Nationwide has satisfied itself that The Derbyshire and The Cheshire's general reserves are sufficient to cover conservative fair value adjustments including current and expected future losses

Nationwide's capital ratios are robust and well in excess of its peers, with Core Tier 1 at 8.1%; Total Tier 1 at 9.7%; and Total Capital at 12.4% as at 4 April 2008. These ratios are all forecast to increase during the current financial year as a result of retained trading profits and after allowing for the two mergers

The mergers are to be concluded by way of separate Board resolutions of The Derbyshire, The Cheshire and Nationwide without the requirement for a member vote at a general meeting of any of the societies

In order to preserve capital within the enlarged Nationwide for the benefit of its combined membership there will be no distribution to The Derbyshire or The Cheshire members

Nationwide recognises the strengths of The Derbyshire's and The Cheshire's local franchises and will retain their brands and branch networks

An Instrument of Transfer has been agreed with The Derbyshire and Heads of Terms have been agreed with The Cheshire

The transaction with The Derbyshire is expected to conclude on 1 December 2008. The transaction with The Cheshire is expected to conclude before the end of the calendar year. Both transactions are subject to confirmation by the FSA and approval by the Office of Fair Trading (OFT).

Commenting on the mergers, Graham Beale, Nationwide's chief executive, said: "The Derbyshire and The Cheshire have independently concluded that a merger with Nationwide is in the best interests of their savers and borrowers given the financial issues faced by both societies. The core member businesses of both societies are in good shape and have a better future as part of a larger organisation. Nationwide is in a unique position because of its size and financial strength to provide support, and we regard it as both responsible and commercially beneficial to undertake these mergers.

"The mergers with The Derbyshire and The Cheshire provide an excellent opportunity for Nationwide to build on its strong position in the financial services sector by adding two attractive customer franchises creating an organisation with almost 15 million members, around 1,000 retail outlets, £191 billion of assets and £122 billion of retail deposits.

"The mergers will further enhance Nationwide's position as the leading UK building society. Nationwide remains committed to mutuality and recognises that these transactions play their part in maintaining a modern and healthy mutual sector in the UK. We look forward to welcoming The Derbyshire and The Cheshire members to Nationwide as part of the UK's largest building society."

Graham Picken, chief executive of The Derbyshire, said: "I am pleased that The Derbyshire has come to an agreement with Nationwide that assures the future for our savers and borrowers. The Board recognised a number of financial uncertainties facing The Derbyshire, and has taken this prudent and pre-emptive action in seeking a solution to secure the interests of our members over the long-term. I have every confidence that The Derbyshire members will benefit from being part of the enlarged Society."

Karen McCormick, chief executive of The Cheshire, said: "We are pleased with the progress we have made at the The Cheshire in building a progressive modern mutual organisation for our members. The core member business is strong. However, whilst we have performed resiliently, the unprecedented market conditions and poor economic outlook have led the Board to consider its strategic options. I am confident that our members will benefit from the strength of the combined organisation. It is pleasing that The Cheshire brand and branch network, together with its presence in the North West, are being retained through a merger which we believe will be in the best interests of our members."