Sources close to the reported takeover of building society Kent Reliance by private equity firm JC Flowers say the mutual’s members will be able to vote on the deal in October.
If the deal is approved by both members and the Financial Services Authority, the new company will be ready to trade in the mortgage and savings markets by the end of December.
The deal, which should be confirmed by Wednesday this week, will see Kent Reliance and JC Flowers launch a joint venture, majority owned by the mutual. Flowers will hold 49% of the new company following a capital injection of £50 million.
The joint venture will therefore not be a traditional mutual but the source said the new company would continue to be run in a mutual fashion.
The deal is intended to provide Kent Reliance with the capital to buffer its tier one capital requirements, enabling the society to “grow rapidly again” said the source.
Sources also confirmed that the capital injection meant the new lender would be offering competitive deals for borrowers in the shared ownership, complex prime and residential sectors.
Jonathan Cornell, head of communications at First Action Finance, has mixed feelings about the deal going ahead. He said: “Clearly the market needs all the lenders it can get, and in that respect consolidation of the mutual sector is not especially welcome.
“On other hand we need a stronger financial services sector and if, in the long run, this consolidation helps strengthen the industry then it will be a good thing. But the short term loss of competition is not good.
“In terms of the ownership structure, private equity firms have wide experience in a variety of sectors so I’m sure there’s experience that JC Flowers can bring to building society sector – it’s just a matter of finding that elusive something.
“I think the deal being accepted by Kent Reliance’s members depends on the process between now and October. If both parties can demonstrate how the deal will benefit members then I’m sure members will approve it, but I do think that private equity has a tough job on the education side to make sure members vote yes.”
The Building Societies Association (BSA) said: "It would be inappropriate for us to speculate on the detail of the Kent Reliance talks with JC Flowers. We understand an announcement will be made in the near future.
"The building society sector is resilient but also innovative. In the light of current extreme economic conditions, different societies will pursue their own individual strategies. However, many societies are continuing to implement the traditional building society model very successfully."
Mike Lazenby, current chief executive of Kent Reliance and tipped to be CEO of the new company was unable to comment on the deal.
