Skipton Business Finance

As the Yorkshire Building Society is on the acquisition of Chelsea Building Society I thought it would be interesting to take a look at what happens in the construction sector of the mutual in the UK.

Just to explain the term, refers to a mutual financial institution where savers and borrowers of capital actually own the company and has no shareholders exist. The organization is managed for the benefit of its members and not shareholders.

The current economic climate and continuing fallout from the credit crisis is forcing some smaller companies and some companies do not build so quick to seek help from major institutions more stable to ensure they are protecting the interests of their members.

There were a number of high-level rescue by the Nationwide Building Society, the UK's largest mutual company in the past 12 months. They had to intervene to rescue the Cheshire and Derbyshire Building Societies Dunfermline.

It seems that this trend should continue as smaller companies struggle to cope with the current business environment. However, it is not only small companies in difficulty earlier this year, the West Bromwich Building Society, the 5th or 6th largest mutual in the UK had to approach the Financial Services Authority as its ability to continue trading.

Such were the problems there, the FSA agreed to invent a new type of share to allow the institution to borrow funds and to stabilize its balance sheet. A move that many in the construction sector of the mutual disapproval that meant there was now a layer of investors over the members (savers and borrowers) who goes against the philosophy mutuality.

In the last year the number of building societies has declined from 59 in 2008 to 52 in 2009 and it is inevitable that this number will decrease further in 2010.

The government and the FSA have stated support for the idea of having 4 or 5 large construction companies called "sector champions" who are able to compete with large banks. While smaller companies that are among station loan locally.

Looking at the assets and customers of those companies building more "sector champions" are likely to be:

• Nationwide Building Society
• Britannia Building Society
• Yorkshire Building Society
• Skipton Building Society
• Leeds Building Society
• West Bromwich Building Society

My opinion on this subject is that it is "pie in the sky" thinking that the modern world does not work locally and most small companies have to merge or die. Therefore, the best course of action for all concerned would merge in about a dozen building societies which are able to offer competitive products and could benefit from economies of scale needed in the new business environment.

In both cases over the next twelve months, there will be massive changes in the sector and many small companies will be absorbed by big companies.