J.C. Flowers Is Said to Plan U.K. Building Society Takeovers

J.C. Flowers & Co. the U.S. leveraged buyout firm, is in talks with Kent Reliance Building Society to create a joint company which will seek to acquire other customer-owned lenders in the U.K., said two people with knowledge of the situation.

Callum McCarthy, European chairman of J.C. Flowers and former Financial Services Authority chairman, will sit on the board of the new venture alongside David Morgan, a managing director of the buyout firm, said the people who declined to be identified because the details are private.

“If the new structure proceeds, it would allow for substantial new capital investment to support the business and would provide a means for the society’s members to remain members of a mutual organisation,” said Kent Reliance in a statement today. The agreement, which may be signed today or tomorrow, will have to be agreed by the society’s 180,000 members, one of the people said.

J.C. Flowers, run by former Goldman Sachs Group Inc. banker Christopher Flowers, was among potential bidders for Northern Rock Plc months before it was nationalized in 2008. The agreement comes as net lending by building societies, mutuals designed to provide home loans, shrank in each of the last 17 months.

Kent Reliance’s management will comprise more than half of the board and hold a stake of more than 50 percent in the new venture which will be classified as a bank, said one of people. Kent Reliance, valued at 50 million pounds, will place its loans and deposits in the new company.

Mutual Mergers

J.C. Flowers will invest 50 million pounds in the company and may ultimately commit several hundred million pounds to bolster the capital of other mutuals that merge with the unit, one of the people said.

Nationwide Building Society, the U.K.’s largest, has expanded in the last two years by buying customer-owned lenders weakened during the financial crisis, including Derbyshire, Cheshire and Dunfermline building societies. Kent Reliance would be able to double in size over five years with the additional investment, even without further mergers, the person said.

Kent Reliance, whose origins date back more than 150 years, had 2.26 billion pounds of assets and posted net income of 1.7 million pounds for the year ending Sept. 30, 2009. It has nine outlets.

Companies including Vernon Hill’s Metrobank and a planned new operation led by Lloyd’s of London Chairman Peter Levene, are seeking to enter Britain’s consumer banking industry.

Officials at J.C. Flowers and Kent Reliance declined to comment.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE