Windfalls ruled out as building societies link

Barnsley Building Society was forced into the arms of a bigger rival today - but members won't get a windfall payment.

Yorkshire Building Society stepped in to save the Barnsley after it admitted it was facing a £10 million loss from deposits it made with Icelandic banks. With that country's banking system now in disarray, the Barnsley felt it had little choice but to seek a stronger parent.

Analysts say more such deals are likely as the Icelandic situation and the credit crunch leave smaller building societies facing collapse.

Barnsley had £10 million with Kaupthing Singer & Friedlander, a bank that offered high rates which also attracted local councils and thousands of individual savers.

Usually when a building society gets taken over, its members get a windfall payment. But Yorkshire today said this deal will not be put to a vote of the members of either society, instead being blessed by the Financial Services Authority.

Barnsley chief executive Steve Mitchell said: "The society's reserves are sufficient to absorb our potential losses, but the board considered that their reduced level would restrict its ability to provide members with the security and benefits associated with mutuality."

Yorkshire is the third-largest society with 1.9 million members, 136 branches and assets of more than £20 billion. Barnsley has 60,000 members and assets of £376 million.

The Building Societies Association says it is not expecting a flood of similar deals.