Cheshire Building Society

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Cheshire Building Society

Cheshire House
Castle Street
Macclesfield SK11 6AF
United Kingdom
Telephone: (+44) 1625 434115
Fax: (+44) 1625 511198
Web site: http://www.cheshire.co.uk

Private Company
Incorporated: 1870
Employees: 900
Total Assets: £4.4 billion ($7.8 billion) (2004)
NAIC: 522120 Savings Institutions

The Cheshire Building Society is one of the leading building societies in the United Kingdom and the largest building society in its core northwest England region. Based in Macclesfield, in Cheshire, the lender operates 52 branches, including its latest flagship branch opened in Manchester in 2004, as well as 13 property service branches. The Cheshire's branches typically serve the smaller towns and villages in the region and many were acquired through a string of mergers with smaller building societies during the 1970s and early 1980s. The Cheshire boasts more than 400,000 members, and total assets of £4.4 billion ($7.8 billion). That places the Cheshire in the 10th place among the United Kingdom's 63 remaining building societies. Nonetheless, the bank trails far behind the largest building society, Nationwide, with nearly 112 billion ($201 billion). In 2005, the Cheshire was said to have discussed the possibility of a merger with Derbyshire Building Society. In addition to its local branch network, the Cheshire has operated an Internet banking service, which has enabled the building society to penetrate the United Kingdom outside of its core region without the expense of establishing an expanded physical branch network. The Cheshire also operates two subsidiaries, the deposit-taking offshore vehicle Cheshire Guernsey Limited, and E-Mex Home Funding Ltd., which acquires and resells third-party mortgages. After several years of falling profits, in May 2005 the Cheshire replaced CEO Colin Whittle with Karen McCormick, who became the only woman to head a U.K. building society. Under McCormick, the Cheshire has continued to affirm its intention to retain its building society status into the near future.

Origins of Building Societies in the 19th Century

Britain's industrialization stimulated a massive influx of population into the country's urban sector. The need for new housing quickly became a pressing concern, especially given the relatively low purchasing power of the average worker, to whom banks were unwilling to provide housing loans. In addition, the British financial community focus was on the London and the southeast regions. The need for home financing elsewhere in the country, particularly in the Midlands and the North, led to the development of a new type of financial tool, the mutual aid society.

The early mutual aid societies were formed by small groups of individuals from the same profession who pooled their resources in order to build houses. As each house was completed, members of the society would draw ballots to determine who would receive the house. Once all of the members had received housing, the society was disbanded. The mutual aid societies soon became known as building societies. The earliest societies were called "terminating" societies because of their temporary nature.

The earliest recorded building society in England was founded in Birmingham in 1775 and was known as Richard Ketley's. By the turn of the 19th century, a growing number of terminating societies had been established, although the movement was largely confined to the North and Midlands region. By the 1810s, the building society movement, previously operating under laws governing associations, began to attract specific legal recognition. In 1812, for example the British court ruled in favor of a building society for the first time in a claim against one of its members. The new legal basis for the building societies helped the movement grow. By 1825, the country counted more than 250 active building societies across the country.

A major milestone in the development of building societies came in 1832 with the passage of the so-called Great Reform Act. As the first piece of legislation governing voting rights in more than 150 years, the new legislation provided suffrage to property owners paying rents of at least forty shillings per year. The opportunity to gain voting rights, which shifted the balance of power in Great Britain toward the more populated urban centers, stimulated an upsurge in the number of building societies in the country.

The increase in building societies led to the passage of the first legislation specifically governing the new industry in 1836. This marked the first official recognition of building societies by the British government. As part of the legislation, building societies were required to receive certification from an overseer, later known as the Chief Registrar. Two years later, the Chief Registrar's office drafted a new series of "Model Rules," applying the first standard to the industry.

By the 1840s, a number of building societies had begun to expand their conception to add savings deposit services as well. At the same time, societies began accepting deposits from members who were not seeking to build homes. Members were nevertheless able to benefit from leaving their savings with the society by receiving interest. This led to the proposal by James Henry James in 1845 for the creation of a new, "permanent" type of building society that remained in existence even after members had completed their homes. The first permanent building society, Metropolitan Equitable, appeared that same year. By the end of the decade, the industry began to make its first efforts at developing standards for calculating interest rates and repayment schedules. After permanent building societies had established themselves as alternative financial institutions, terminating societies still remained in business and endured into the 20th century, with the last terminating society shutting its doors in 1980.

The creation of the permanent building society took on still greater significance with the quickening industrialization, and concurrent urbanization, of England in the mid-19th century. The large population of urban workers, while low paid, was able to make up in collective wealth for the lesser financial worth of its individual members. The development of building societies with a permanent status enabled the groups to shift their model from providing direct funding for the construction of its members housing to providing loans, which were then repaid, with interest, into the common pool. The practice of balloting for loans was abandoned by many, but not all, of the new societies, since this method of attributing loans was open to abuse by gamblers.

By 1855, building societies themselves had begun to gather together into "protection associations" that developed lobbying strength to thwart government attempts to impose restrictive legislation and increase taxes on the industry. In 1869, the building society movement set up a single, nationally operating protection association in London. The need for legislation was evident, however. In 1870, the British government launched an examination of the sector and passed the first Building Societies Act in 1874. By that time, the number of building societies had grown significantly. At the industry's height, more than 2,750 societies were in operation across the country. Among these was a small building society founded in Macclesfield, in Cheshire in the north of England, which, as the Cheshire Building Society, became one of the nation's oldest and largest building societies.

Merging for Scale in the 1970s

The Cheshire, like most institutions of its kind, focused on serving its local community, extending its services to outlying towns and villages in the area around Macclesfield. The 1874 legislation had placed limits on the range of services building societies were allowed to offer to its customers. For this reason, the Cheshire focused on providing mortgage and savings services.

The number of building societies began to drop off in the early years of the 20th century, in part because of mergers among the societies themselves. By 1910, there were fewer than 1,750 societies still in operation. This trend was to continue throughout the century, in large part because of pressure from further legislation and increased competition from the banking sector. The passage of the Building Societies Act of 1939 placed limits on mortgage securities available to building societies, while at the same time imposing the first in a series of mortgage rates increases. The development of new savings products by the country's banks further stiffened competition for building societies. In an effort to remain competitive, the industry entered an extended period of consolidation as the largely small-scale building societies merged together.

Building societies had also begun to raise their mortgage rates, a trend that started in 1939. This practice, along rising competition from the nation's banking sector for members' savings accounts, forced the beginnings of a shakeup in the U.K. building society market, which entered a long period of consolidation. The consolidation of the sector gathered momentum in the 1960s, after the passage of a new Building Societies Act in 1960 that placed limits on the size of loans, particularly corporate loans, made by building societies. The British government encouraged the further consolidation of the sector with the passage of an additional Building Society Act in 1962, which incorporated all previous legislation governing the sector. The result was a stream of mergers and acquisitions that continued into the 1990s.

The Cheshire Permanent Benefit Building Society, as it was then known, joined the drive toward consolidation in the late 1960s. In 1969, the society joined with a neighboring building society in Northwich to form the Cheshire and Northwich Building Society. The new group began a steady period of growth, reaching total assets of more than £28 million by 1972.

Company Perspectives:

The Cheshire sees world class quality customer service as the principal cornerstone of its success. By putting customers first, it has endeavoured to continue to provide a standard of service considered outstanding in its sector. The Board and Executive are firmly committed to maintaining growth, profitability and independence through a firmly held belief that mutuality works for the greater benefit of all its members.

The Cheshire began seeking additional mergers throughout the 1970s. By the middle of the decade, the society added a number of other societies in the region, including the Winsford Permanent Building Society. The group's increasing strength enabled it to boost its level of assets, which topped £60 million by 1976. By the end of the decade, the society's assets had grown to nearly £120 million. With 100,000 investing members, the society had become one of the Northwest region's three largest building societies. In recognition of its focus on the Cheshire region, the society had simplified its name to the Cheshire Building Society.

Into the early 1980s, the Cheshire continued negotiating mergers with its smaller neighbors. In 1980, for example, the Cheshire agreed to merge with the John Summers Building Society, which had been founded in 1901 to serve workers at the Summers Steel Works, later known as the Shotton Works and part of British Steel Corporation. As a result of that merger, the Cheshire not only added a branch office in Flint but also a new branch in Mold as well. In 1981, the Cheshire found two new merger partners: the Ashton Stamford and the Sandbach building societies. The latter merger gave the Cheshire its most southerly branch office, in Alsager, near Stoke on Trent.

The Cheshire largely completed its Cheshire region consolidation by 1982. In that year, the group made three significant mergers. The first was the addition of the Accrington and District Permanent Benefit Building Society. This merger also added the former operations of another Accrington building society, Accrington Victoria Permanent Benefit Building Society. The second merger of 1982 moved the Cheshire into Leigh, the result of the society's merging with Leigh Permanent. The third and final merger of the year, with Wigan Permanent Building Society, not only added a branch in Wigan but also a new branch office in Leyland as well.

Merger Candidate in the 2000s

In all, the Cheshire had completed 13 mergers through the 1980s and become the region's leading building society. During the 1990s, the society continued to build up its assets and by the early 2000s had become the United Kingdom's tenth-largest building society.

Concurrent with the Cheshire's growth, the building society sector underwent dramatic changes. The passage of a new Building Societies Act in 1986, amid sweeping changes in the legislation governing the British financial sector as a whole, had removed many of the restrictions on building societies and the financial products and services they were allowed to offer. Building societies were now also allowed to convert their status to shareholding corporations under the new legislation. The result was a further drop in the number of building societies in the United Kingdom. By the late 1990s, only 100 building societies remained, a figure that would drop to just 62 by 2005.

The Cheshire, however, remained committed to its mutual status. Nonetheless, the society responded to the changing market by developing new products and services in the late 1990s. In 1997, the company created Cheshire Guernsey Limited, a deposit-taking vehicle designed to take advantage of the liberal tax laws governing the Guernsey banking sector. In 2000, the Cheshire added a new mortgage products subsidiary, E-Mex Home Funding Ltd. That subsidiary was established in order to acquire and market mortgage products from third parties. In 2001, for example, E-Mex acquired its first £13 million package from Prudential Assurance Company. The company began making larger acquisitions toward mid-decade, such as a £90 million package from GMAC RFC in 2002 and a £144 million mortgage package in 2003.

The Cheshire remained committed to its northern regional operations. Nonetheless, it developed its own e-banking capacity, enabling it to begin offering mortgage and loan products to the rest of England for the first time. Meanwhile, the Cheshire took steps to fill a gaping hole in its branch office network when it opened a flagship office in Manchester, thus marking the society's entry into the region's largest urban market.

By 2005, the Cheshire had boosted its assets past £4.4 billion ($7.9 billion), placing it in the tenth position among the nation's top 20 building societies. Nevertheless, the Cheshire remained far behind the sector's leader, Nationwide, which had built up assets of nearly £112 billion. By mid-2005, under pressure of maintaining its competitiveness in a sector becoming increasingly international, the Cheshire was said to have begun discussions with similar-sized rival Derbyshire Building Society for a possible merger.

Principal Subsidiaries

E-Mex Home Funding Ltd.; Cheshire Guernsey Ltd.

Principal Competitors

Nationwide Building Society; Britannia Building Society; Yorkshire Building Society; Portman Building Society; Coventry Building Society; Chelsea Building Society; Skipton Building Society; Leeds & Holbeck Building Society; West Bromwich Building Society; Derbyshire Building Society.

Key Dates:

1870:: The Cheshire Permanent Benefit Building Society is founded in Macclesfield, Cheshire, England.
1969:: The Cheshire merges with Northwich Building Society, becoming the Cheshire and Northwich Building Society.
1973:: The Cheshire merges with the Winsford Building Society.
1980:: The Cheshire merges with John Summers Building Society.
1981:: Mergers with the Ashton Stamford and the Sandbach building societies are completed.
1982:: The Cheshire merges with Leigh, Wigan and Accrington building societies.
1997:: The Cheshire Guernsey Ltd is created.
2000:: The society establishes E-Mex Home Funding Ltd.
2005:: The Cheshire is rumored to have held merger talks with Derbyshire Building Society.