September 5, 2008 7:05 pm

Catholic society offers merger bonuses

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Thousands of savers and borrowers with Catholic Building Society are being offered merger bonuses of between £100 and £500 in what could be the first of a series of windfalls from societies. The housing downturn is expected to trigger further mergers among the near-60 remaining mutual lenders.

The Catholic payouts, due to be detailed in a mailing to the 4,000 customers of the one-branch society in the next few days, are on offer as part of a proposed tie-up with Chelsea, the fifth largest society. The typical bonus for Catholic savers is expected to be £225 to £250, calculated on the average of their balances on 31 May and 31 December this year. The Catholic’s near-400 mortgage borrowers are being offered flat-rate payments of £100.

The windfalls, subject to Catholic’s members voting for the deal, will be distributed in January and are taxable. As is common practice in society mergers, savers and borrowers with Chelsea – the dominant partner in the transaction – will not receive a payout. Chelsea said that the deal reflected the high burden of regulation for small societies. Other
sector minnows facing similar pressures could seek
tie-ups.

Society payouts could also result from mergers sparked by worsening property market conditions. Rising bad debts and falling profits will “inevitably” mean more consolidation, according to KPMG, the consultancy.

Most societies require savers to sign away their right to windfalls resulting from demutualisation for their first five years of membership, but this does not apply to merger bonuses.

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