Lambeth members get £400 windfall in Portman takeover

More than 70,000 members of Lambeth Building Society are each set to receive a cash windfall of at least £400 if they back a takeover offer from Portman Building Society.

Portman announced yesterday it had reached agreement with Lambeth's board to take over the savings and mortgage provider, which is the country's 20th-largest building society and has nine branches in the south of England.

Portman, which will remain the UK's third-largest society behind Nationwide and Britannia after the deal, expects to make a formal offer to Lambeth members eligible to vote on the takeover before the end of next month.

Robert Sharpe, the chief executive of Portman, said he expected Lambeth savers to receive windfalls that would vary in size according to their account balances. Mortgage borrowers are likely to be offered a flat-rate windfall, though many will benefit from the fact Portman offers marginally cheaper interest rates on comparable products.

To be eligible for the windfalls, which Portman has promised will be worth at least £400, savers and borrowers must have held a Lambeth mortgage or savings account on 31 January. In addition, savers' account balances must have been in excess of £100 on that date. To receive the money, eligible members will also have to retain their accounts until the takeover is completed, likely to be in the autumn.

Mr Sharpe said it was not yet possible to value the deal, though the windfalls will be paid for using some of Lambeth's £80m cash reserves. Portman has prom ised not to make compulsory redundancies after the takeover. Instead, it will reap savings by closing Lambeth's head office and by merging the two societies' marketing and administrative operations.

The deal is the latest in a series of rationalisations in the building society sector. There are now about 60 societies in the UK, down from more than 150 in the 1980s. In addition to a series of demutulisations, with conversions of companies such as Halifax, Alliance & Leicester and Northern Rock to banking status, smaller societies have merged in the face of rising cost pressures.

Mr Sharpe said: "What we've seen quite clearly from previous mergers is that the money spent on functions such as marketing, IT, accounts and treasury can be taken out in savings. If the savings and mortgage markets remain as competitive as they have been, some of the smaller societies will find the costs of regulation and operation more and more difficult."

Richard Vaughan, the chairman of Lambeth, will join the Portman board under the deal, with Mr Sharpe chief executive of the combined operation.

Portman is to close at least two Lambeth branches, in Bromley and Woking, where it has its own outlets. The remaining branches will be relaunched with the Portman livery.