Nationwide/Portman: beware retail banks!

15th September 2006
By Karina Purang

Nationwide and Portman have announced their intention to merge by the end of September 2007.

Nationwide Building Society and Portman are to merge, subject to gaining the support of Portman's members and regulatory approval. The move will create the biggest ever building society in the UK and further strengthen Nationwide's position in the retail banking sector. Indeed, the enlarged society is likely to pose a serious threat to leading retail banks and specialist mortgage lenders.

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The largest and the third largest building societies in the UK have announced their intention to merge in what would be the biggest ever building society merger in the UK. The enlarged building society would have assets in excess of GBP150 billion and operate under the Nationwide name.

The proposed merger is expected to bring about a number of synergies, turning Nationwide into a more powerful player in the retail banking market, with more than 880 branches and a customer base exceeding 13 million. Not only will it further widen the huge gap between Nationwide and the other mutual organizations, but the move will also see Nationwide strengthen its position in the aggressively competitive retail banking sector and pose more of a threat to leading retail banks.

The partnership will see Nationwide overtake Abbey as the second largest mortgage lender in the UK in terms of balances outstanding and will position Nationwide as the second largest retail savings provider in the UK. Moreover, the deal will assist Nationwide in strengthening its position in the specialist mortgage sector by bringing together UCB Home Loans, its specialist mortgage arm, and The Mortgage Works, Portman's specialist mortgage subsidiary.

Nationwide will also have access to a new range of wealth management and financial planning services and will be able to offer credit cards and current accounts to Portman's customer base - two sectors in which Portman currently does not have a presence.

With the enlarged society expected to benefit from significant economies of scale leading to cost savings, Nationwide will be in a better position to deliver pricing benefits to its members. It is highly likely that the forthcoming merger will trigger some changes in the retail banking landscape. Major retail banks may be forced to re-evaluate their existing propositions and become even more competitive. And, not least, we may see a number of the smaller building societies rushing into mergers in order to compete in an increasingly demanding market place.
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