Manchester and Newcastle building societies agree merger

Manchester and Newcastle building societies agree merger in efforts to secure north west group’s long-term future after 10-year lending drought

  • The two parties initially entered into an exclusivity agreement last August
  • Manchester Building Society has just 11,000 members and c.£200m in assets
  • Newcastle has 345,000 members, 1,400 workers and total assets of c.£5.3bn 

Bosses at Newcastle Building Society and Manchester Building Society have agreed to a merger in efforts to secure the latter’s long-term future. 

The two parties initially entered into an agreement last August to explore the possibility of combining operations by means of transferring Manchester’s engagements to Newcastle.

In a joint update on Tuesday, the two building societies said a tie-up would help give Manchester customers greater product choice and interest rates that are either the same or higher than they currently have.

Manchester has not engaged in lending since 2013, according to the statement, and ‘faces uncertainty around its long-term future in the absence of a transaction’.

Tie-up: Newcastle Building Society have agreed on a merger with Manchester Building Society

Additionally, Manchester’s board believes the group would be unable to withstand a ‘major financial or economic stress’ without needing to raise capital from investors.

The financial institution, which celebrated its centenary last year, has not undertaken any new lending for the past decade as part of plans to de-risk and reduce the size of its balance sheet.

Under present forecasts, the business expects losses to continue exhausting capital reserves while remaining as a standalone entity.

‘Accordingly, the Manchester board has considered a range of strategic options and concluded that the best interests of members would be served by a merger with a larger, stronger building society,’ the update said.

Manchester Building Society has 11,000 members, 44 employees and around £200million in assets under management, compared to Newcastle’s 345,000 members, 1,400 workers and assets of £5.3billion.

The pair said an amalgamation would provide ‘greater resilience and additional capital strength’, and a pipeline for Manchester staff to the Newcastle Group, especially within its fintech division Newcastle Strategic Solutions.

Formed itself through a merger in the 1980s, Newcastle is the UK’s eighth-biggest building society with 31 branches situated across the North East of England.

In its most recently-published financial results covering the first half of 2022, the organisation revealed pre-tax profits had declined by £1.7million year-on-year to £14.2million amidst lower mortgage lending volumes. 

Andrew Haigh, Newcastle’s chief executive, said: ‘The merger presents an opportunity for both our societies to come together in a way that truly benefits both sets of members.

‘As a financially robust, purpose-powered business, the move supports Newcastle Building Society in delivering our growth strategy at greater scale and impact, and in a way that offers opportunity for members and colleagues from both organisations.’

The merger’s approval is dependent on the Prudential Regulation Authority (PRA), following which it is anticipated to come into effect at the start of July. 

But if the PRA refuses to give the thumbs up, one of the two building societies may become liable for costs of up to £1million.