Lambeth, the 20th largest building society in the UK and Portman, the country's third biggest building society, have agreed to a merger, which will take effect on the September 30, 2006, subject to the approval of Lambeth's members and confirmation of the Financial Services Authority. The enlarged organization will keep its mutual identity and will be known as Portman Building Society.
According to Portman's chief executive, while small and medium-sized companies are able to operate profitably, the market environment is becoming more challenging and the merger will see the enlarged building society better equipped to face challenges ahead.
Indeed, the future of UK building societies in the current cut-throat market is a topical issue. Many in the industry believe that in order to survive, small and medium-sized building societies will eventually have to consolidate. Already, earlier this year, Leeds and Mercantile building societies announced that they were to merge.
Moreover, there are now 63 building societies, down from 80 in 1995 and 165 in 1987. While demutualization is partly responsible for this decline, mergers too have played a major part. While small players have the necessary means to compete with bigger players in terms product and services offering, whether they have the means to manage the profound challenges occurring in the back office are of a different matter.
Basel II compliance will put immense pressure on back office systems and the cost of implementing new technology is becoming more expensive and ever more vital to staying competitive. Moreover, regulation is maintaining momentum and is pushing further costs on financial institutions. As such, it is unsurprising that small building societies are seeking partnerships to stay in the market place. It is likely that, going forward, the landscape of building societies will witness further mergers.