Court bars 1.8bn pounds windfalls in building society merger

MORE THAN a million customers of Cheltenham & Gloucester Building Society face losing pounds 1.8bn in cash windfalls after the High Court ruled yesterday that payments to account holders of less than two years' standing by Lloyds Bank as part of a proposed merger are unlawful.

The merger, announced in April, is now likely to fail in its present form, as over 27 per cent of C&G shareholders have held their accounts for less than two years. Under building society rules, at least 75 per cent of shareholders voting have to agree a takeover. The deal may be salvaged only by a successful appeal or a revamped offer. C&G and Lloyds said last night that they were determined to press on.

The ruling will discourage plans by other societies and banks for similar link-ups. The Leeds, Northern Rock and Cheshire societies have all retained City advisers to ward off unwelcome approaches.

The planned takeover was always politically sensitive, as building society legislation is designed to stop people betting on the next possible takeover target by depositing cash in different societies. It also aims to prevent aggressive takeovers of societies by banks, which might be tempted to pay less to society members than to shareholders in public companies, who are more easily able to value their holdings.

It was Parliament's opposition to 'hot money' chasing possible takeover targets that swayed Sir Donald Nicholls, the Vice-Chancellor, in his 20- page judgment, handed down yesterday.

Under Lloyds' scheme, 840,000 investors would have have received an average of pounds 1,700; 370,000 borrowers would have got pounds 500 and 60,000 depositors an average of pounds 2,500.