Britannia and Co-op unveil plans for super-mutual

The Boards of Britannia Building Society and Co-operative Financial Services (CFS) - two of the biggest customer-owned financial services businesses in the UK - today confirm they have agreed to merge to create a super-mutual as a unique, ethical alternative to shareholder- and Government-owned banks.

The new business will combine CFS's strong personal and corporate banking, insurance and investment expertise with Britannia's extensive high street presence and savings and mortgage product strength.

Combining CFS, part of the world's biggest consumer co-operative, with Britannia, the UK's second biggest building society, will create a business with £70 billion of assets, nine million customers, 12,000 employees, more than 300 branches and 20 corporate banking centres. The business will be strongly capitalised, with a pro forma Tier 1 ratio of 9.8% as at 31 December 2008 (calculated on the same basis as if the combined businesses remained standalone).

The business will be led by current Britannia group chief executive Neville Richardson. Bob Burlton, the current CFS non-executive chairman will chair the new board. CFS chief financial officer Barry Tootell will become the new chief financial officer. After supporting the integration process, CFS chief executive David Anderson will leave the business.

Britannia chairman Rodney Baker-Bates commented: "The combined and complementary strengths of our businesses will offer customers a strong, fair and ethical, alternative to banking plcs. Customers will be owners and will have available all the services they would expect from a major financial provider, together with a real say in setting strategy combined with a share of the profits."

CFS chairman Bob Burlton added: "This move will accelerate the momentum within the co-operative and mutual sector. Both businesses have been pursuing successful strategies independently and are strong in their own right but we recognise we could be even more successful by coming together to create the UK's most trusted financial services business."

The new business will be a wholly owned subsidiary of The Co-operative Group, one of the world's largest and most successful consumer co-operatives with core business interests in financial services, food, travel, pharmacy and funeral care.

Britannia members will become members of The Co-operative Group and will therefore need to approve the deal in a vote at a general meeting expected to take place on 29 April 2009.

Customer benefits

Customers will be able to access the full range of banking, savings, investment, insurance and mortgage services from an expanded network of more than 300 branches, British-based call centres and the internet after integration of the two businesses, which is expected to take up to three years.

The new business will continue to trade under the Britannia and Co-operative brands, as well as the Smile internet bank and Platform intermediary lender brands. It will look to move quickly to a single product range once the necessary integration of customer systems is complete, but customers will see no immediate change to the products and services they receive.

Britannia and CFS are committed to continuing their high levels of member involvement in the combined business. Britannia operates a unique Members' Council and The Co-operative Group is highly regarded for its member democracy.

Both businesses also have a tradition of sharing profits with their members -Britannia through its Membership Reward and CFS through the Co-operative dividend. Customers will have the potential to earn greater member rewards through the wider range of products offered by the most broadly based and diversified financial services mutual in the UK, and through wider membership of The Co-operative Group.

The combined business will expect to deliver more than £60 million a year in efficiency and revenue benefits from year three and, as a customer-owned business, customers will share in these savings through more competitive rates, improved customer service or increased member dividends.

The Financial Services Authority (FSA) has confirmed that, under current arrangements, savers who have accounts with both organisations will retain their £50,000 protection with both businesses under the Financial Services Compensation Scheme.

Both organisations have remained active in the mortgage and personal and corporate lending markets over the last year, and expect this to continue after the merger.

Employees and locations

The merged business will continue to have a significant presence in Leek and Manchester. Combining the two branch networks will increase the number of branches available for customers to more than 300. Where there are two branches in the same town, these may be merged in due course but there will be no compulsory redundancies among branch staff as a result of the merger

It is expected that there will be some reduction in roles during the three-year integration process, however significant synergy benefits are also expected from procurement and supplier savings. Any compulsory redundancies will be kept to a minimum through redeployment, re-training and normal staff turnover over the three-year timeframe.

The new business is committed to working with all recognised trade unions to effectively manage any changes.

What happens next?

The merger has been enabled by new legislation which for the first time allows mergers between different types of mutuals. A draft statutory instrument under the Building Societies (Funding) and Mutual Societies (Transfers) Act 2007 - known as the Butterfill Act, after its sponsor Sir John Butterfill MP - was laid before both Houses of Parliament on 19 January 2009 and, subject to approval by both Houses, is expected to become law in March.

Details of the proposed merger are expected to be sent to Britannia members in March 2009, and they will be asked to endorse the proposals at a general meeting, expected to be held on 29 April 2009.

The FSA has confirmed that the enlarged business will be eligible for HM Treasury's credit guarantee scheme and that no external capital raising is required. The merger is expected to become effective in the summer, subject to confirmation by the FSA.

Commentary

David Anderson said: "The co-operative and mutual movements have never been more relevant. Owing to the damage done by the credit crunch, people have been crying out for a new way of doing business with a financial organisation of substance that truly has their interests at heart - this merger will create that organisation and we'd hope to attract many thousands of new customers as a result."

Neville Richardson said: "This proposed merger offers a unique opportunity to create a new force in British financial services - strongly capitalised and with the scale to offer customers a full range of products and services that are ethical, mutual and co-operative.

"Britannia members have an historic opportunity to help create a new way of doing business in British financial services by voting to bring together two leading customer-owned businesses with unrivalled reputations for social responsibility, customer satisfaction, employee engagement and member democracy. They can choose to be part of something good."