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Takeover will cut competition

In last week’s column, Mark Harris concluded that the “merger” of Nationwide and Portman would be positive for consumers in the short term but negative in the long term. It is worth returning to the subject as I think it will also be negative for consumers in the short term.

When is a merger not a merger? Answer – when one building society takes over another. If it looks like a takeover, feels like a takeover and the financials are based on a takeover, then it is a takeover. Eligible savers and borrowers of Portman will receive a “merger booklet” and get to vote on the takeover. A vote in favour is a foregone conclusion and eligible Portman members, including those lucky ex-members of Lambeth who only became members of Portman last Saturday, will get a “merger bonus”.

It appears Nationwide members will not even be sent a copy of the “merger booklet”, let alone get a vote or a bonus. The new soc-iety will be called Nationwide. As the FSA has given its consent to this takeover ,I presume it accepts that describing a takeover as a merger is being “clear, fair and not misleading”?

I was surprised that in the press release announcing the merger. Nationwide only claimed to be the fourth-biggest mortgage lender in the UK as, according to the biggest lenders stats’ on the CML website, it was third-biggest both last year and the previous year. The Portman takeover will put it in the number two slot but, based on the latest CML stats, after the takeover Nationwide’s mortgage balances will still only be 51 per cent of HBOS’s, compared with 45 per cent now. Any improvement in its ability to compete with HBOS is more likely to be a result of acquiring The Mortgage Works than based on pure size.

Nationwide chief executive Philip Williamson said on BBC’s Moneybox “We believe that the benefits of this particular transaction [note he avoided using the word merger] will enable us basically to make our mortgages cheaper…and deliver fewer fees and charges than we currently do today.”

But Nationwide has been increasing its arrangement fees for the last three years and it is interesting to note from its press release that “Portman has appeared in best buy tables for mortgages or savings every week for the last three years” while there was no mention of Nationwide in the best buy tables.

This takeover is the way of the world but it will reduce competition and therefore be bad for consumers.

Ray Boulger is senior technical director at John Charcol

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