Nationwide poised to merge with Derbyshire and Cheshire

Nationwide, the UK's largest building society, is expected to announce the completion of two separate mergers, with the Derbyshire and Cheshire Building Societies, today.

The Derbyshire deal was understood to be already agreed yesterday, and only the final points of the Cheshire agreement were left to be ironed out.

Under the terms of the mergers, Nationwide's £179bn of assets and 900-strong branch network will absorb Derbyshire's £7.1bn of assets and 50 branches and Cheshire's £5bn of assets and 45 branches. But because the smaller societies will retain both their branding and their high-street networks, members will face little upheaval, and any redundancies are expected to be confined to head office and soaked up by the natural churn of staff.

Neither transaction was instigated by the Financial Services Authority, although the regulator has been kept up to date of developments.

Derbyshire's chief executive, Graham Picken, approached Nationwide early in the summer, while Cheshire boss Karen McCormick started negotiations more recently. The talks were separate, but in both cases the plan was to pre-empt problems caused by any further deterioration in the economy, rather than because either organisation was in immediate danger.

In the aftermath of the credit crunch, consolidation in the £350m building society sector has long been expected. Building societies are particularly exposed to economic declines because they rely on savings income and do not have access to the equity funding available to banks.

In June, the predictions started to come true when Chelsea Building Society, the UK's fifth largest, agreed to take over the Catholic, a much smaller rival. Last month, an annual survey from KPMG concluded that although the 59 remaining societies had held out well so far, the continuing slide in the economy, and rise in bad debts, meant more consolidation was only a matter of time.

But while the sector's tiddlers are suffering, Nationwide is doing well from the downturn. Results for the year to April showed a £9.1bn increase in deposits and pre-tax profits up by 17 per cent, as wary savers switched from banks to building societies, and from smaller to larger organisations.