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SAVINGS GIANTS IN MEGA-MERGER

YORKSHIRE Building Society is in advanced merger talks with beleaguered competitor Chelsea, in a deal experts said could fuel further consolidation in the sector.<br /><br />A tie-up, yet to be approved by the FSA, would create a major force in the building society arena. With &pound;38bn assets and 2.7m members it would be second only to Nationwide.<br /><br />Chelsea, which has 35 branches and 700,000 members, made losses of &pound;39m in 2008 and reported a &pound;26m deficit for the first half of 2009 after setting aside &pound;41m to cover mortgage frauds.<br /><br />Its difficulties generating profits have led to pressure on its capital ratio, which must be maintained to satisfy the regulator&rsquo;s requirements.<br /><br />Yorkshire, based in Bradford, has 143 branches and will be seen as the dominant partner in a deal. Its chief executive Iain Cornish is being tipped to lead the merged group.<br /><br />In a statement yesterday, Chelsea said: &ldquo;The board has been undertaking a detailed review of the society&rsquo;s activities, operations, financial position and corporate structure. As part pf this, Chelsea has considered the potential benefits... of a merger and this has culminated in discussions with Yorkshire.&rdquo;<br /><br />The societies said they would issue contingent capital, which converts into core tier 1 capital if an organisation&rsquo;s ratio dips below a specified level.<br /><br />In this case, Chelsea&rsquo;s subordinated debt would be converted into a new instrument with an annual 13.5 per cent coupon. It would convert into profit participating deferred shares if the company&rsquo;s core tier 1 ratio fell below five per cent.<br /><br />Chelsea said this would increase the enlarged society&rsquo;s core capital by &pound;100m as well as creating &pound;100m of contingent capital.<br /><br />The news of talks follows Nationwide&rsquo;s rescue of the Cheshire and Derbyshire building societies last September, Yorkshire&rsquo;s acquisition of the Barnsley and the Skipton&rsquo;s merger with the Scarborough.<br /><br />A spokesperson for the Building Societies Association said a link-up between Yorkshire and Chelsea could spur further mergers, adding: &ldquo;I believe there will be more to come.&rdquo;<br /><br /><strong>TOP FIVE MUTUALS BY GROUP ASSET VALUE</strong><br />1) &nbsp;&nbsp;&nbsp; NATIONWIDE&nbsp; &nbsp;&nbsp;&nbsp; - &nbsp;&nbsp;&nbsp; <strong>&pound;202.3bn</strong><br />2) &nbsp;&nbsp;&nbsp; YORKSHIRE &amp; CHELSEA &nbsp;&nbsp;&nbsp; - &nbsp;&nbsp;&nbsp; <strong>&pound;37.6bn</strong><br />3) &nbsp;&nbsp;&nbsp; BRITANNIA / CO-OP &nbsp;&nbsp;&nbsp; - &nbsp;&nbsp;&nbsp; <strong>&pound;37.2bn</strong><br />4) &nbsp;&nbsp;&nbsp; COVENTRY &nbsp;&nbsp;&nbsp; - &nbsp;&nbsp;&nbsp; <strong>&pound;17.3bn</strong><br />4) &nbsp;&nbsp;&nbsp; SKIPTON * &nbsp;&nbsp;&nbsp; - &nbsp;&nbsp;&nbsp; <strong>&pound;16bn</strong><br />5) &nbsp;&nbsp;&nbsp; LEEDS &nbsp;&nbsp;&nbsp; - &nbsp;&nbsp;&nbsp; <strong>&pound;10.1bn</strong><br />Source: Building Societies Association<br />* Post merger with Scarborough August 2009