KPMG predicts merger wave

A recent study by KPMG suggests there could be a new wave of mergers in the UK Building Society sector over the next few years, primarily as a result of the severe downturn in the UK's economic fortunes.

KPMG in its study points to the need for Building Societies to either, be forced into a merger due to poor performance, or to take advantage of growth opportunities given the current market turbulence.

KPMG may be right . If history is anything to go by there are a number of precedents that support their view.

However like most reviews and market assessments of the sector the frame of reference is all too familiar and depressing. It will, if not corrected, lead ultimately to the demise of the sector, which has got to be a bad outcome for all of us.

KPMG's study is framed by the perception of the need for the sector's participants to survive. Indeed many of the mergers in the past had this as their sole raison d'etre, supported by the Building Societies Association and the regulators.

If the sector is to thrive, which surely should be our aim, then we need to change this frame of reference into one which demands that the sector works out a way to grow and prosper in the face of fierce competition from sizeable banking competitors.

Western Europe could provide a template for the future, particularly in the low countries and Germany. Here there are national product and service infrastructures that allow a federation of geographically distinctive entities to 'plug' into a reliable business infrastructure, freeing the business to focus on what it does best, namely competing for local custom. It eliminates the heavy burden of  having to unilaterally fund huge infrastructure investment and factor disproportionate costs into, what inevitably becomes, uncompetitive pricing. 

Could this happen here? In as much as we need to change the mandate for the sector to allow it to think about growth as an alternative to survival this will only happen if there is a lead from government, the regulators and the sectors association. They must drive the required structural change forward, bacause, as the saying goes 'turkeys don't vote for Christmas'. This has singularly failed to happen to date and I would not hold my breath waiting for a change to happen anytime soon.

Looks like another round of mergers then! Shame.