Anticipated merger between Skipton Building Society and Scarborough Building Society

Affected market: Financial services and building societies

No. ME/3987/09

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 2 March 2009. Full text of decision published 19 March 2009.

Please note that the square brackets indicate figures or text which have been deleted or replaced in ranges at the request of the parties or third parties for reasons of commercial confidentiality.

PARTIES

Skipton Building Society (Skipton) is a mutual building society incorporated under the Building Societies Act 1986 and is part of the Skipton Building Society Group. It provides financial services to personal customers including mortgages, savings, financial planning, insurance and will-writing services. Skipton is also active in the commercial mortgages sector, and provides a range of intermediary services, including mortgage administration services. The Skipton Building Society Group is also active in mortgage process outsourcing (MPO) services through its subsidiary Homeloan Management Limited (HML). Skipton has a network of 85 branches and agents located in and around North Yorkshire.
 
Scarborough Building Society (Scarborough) is a building society incorporated under the Building Societies Act 1986. It provides mortgages, savings and insurance services to personal customers. Scarborough is also active in MPO services through its subsidiary Scarborough Mortgage Services Limited (SMS) and mortgage portfolio management through its subsidiary, North Yorkshire Mortgages Limited. Scarborough has nine branches, the majority of which are located in and around North Yorkshire. Scarborough's UK turnover in 2008 was £172.2 million.

TRANSACTION

Skipton proposes to merge with Scarborough through a statutory transfer of engagements. In particular, the FSA and the parties have agreed to expedite the transaction by structuring it as a directed transfer under section 42 B(3)(b) of the Building Societies Act 1986,  enabling it to proceed on the basis of board resolutions by the parties and without member votes. It is anticipated that the transfer of engagements will become effective on 30 March 2009.

The parties notified the transaction to the Office of Fair Trading (OFT) on 5 January 2009. The administrative deadline for the OFT to decide whether to refer the merger to the Competition Commission (CC) is 2 March 2009.

JURISDICTION

As a result of this transaction Skipton and Scarborough will cease to be distinct. The UK turnover of Scarborough exceeds £70 million, so the turnover test in section 23(1) (b) of the Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

The OFT received comments and views about the merger from a number of third parties, including competitors and customers of the merging parties.
 
No third parties, including customers and competitors, raised any concerns regarding the supply of financial products to personal customers in the UK.

Regarding the supply of MPO services, no competitors raised any concerns about the merger. The majority of MPO customers had no concerns about the merger. However, one customer raised concerns noting that the merging parties were close competitors. Several customers noted that competition in the market was already limited pre-merger and that there were few viable alternatives to HML.

ASSESSMENT

Skipton and Scarborough overlap in the supply of a range of financial services to personal customers, in particular mortgages, savings and insurance products in the UK. They also overlap in the supply of long-term investment products and financial planning, although Scarborough is only a distributor of these services. Finally, the parties overlap in the supply of MPO services to UK financial Institutions through their subsidiaries HML and SMS respectively.
 
In the market of financial products to personal customers in the UK, the OFT examined all these financial products on a national, regional and local basis.

Based on the evidence available to it, the OFT considers that no competition concerns will arise on any of these frames of reference. At the national and regional (North East of England) levels, the parties have a small combined share of supply in relation to each of the product segments with minimal or small increments in all segments. At a local level, the OFT concluded that there are no locations in which there was a reduction of fascia to four (or less) and there was no area where there would be fewer than eight competitors.

In the market of the supply of MPO services to third parties, the parties' combined market share is approximately [70-80] per cent with an increment of [0-10] per cent. The bidding study (whose data has some limitations and therefore cannot be fully relied upon to the exclusion of the market share data) indicates that SMS is not a strong constraint on HML in bidding for MPO contracts, and that HML's competitive strength may be significantly less than its market share suggests. Nevertheless, there are at least two effective competitors for MPO services (Vertex and Crown) that would remain post-merger. In addition to these, WMS, which has bid against the parties, and EDS appear to be providing similar services to the parties, and although they do not currently have third-party MPO contracts, appear to constitute a viable alternative for mortgage lenders. Capstone, given its links to Lehman Brothers, which is currently under administration and NSSL with no active contracts in the UK, may impose a minimal constraint to the parties. Furthermore, in-house supply is to a certain extent a significant competitive constraint on MPO suppliers, in particular for large customers. Finally, third parties, including customers and competitors, were largely unconcerned about the impact of the merger on competition.

Consequently, having considered all the evidence it has received the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.
 
DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

Back to top