Building society ready to take private equity

The group plans to raise 50m from JC Flowers in a move that will see it become the first building society to take external capital.

Under the new name Kent Reliance Provident Society (KRPS), the group's switch in status will allow it to remain as a mutual while also having the ability to expand through acquiring other banks and building societies.

JC Flowers is expected to take a significant minority stake of around 40 per cent in the new bank, held within KRPS.

Kent Reliance Building Society (KRBS) hopes the deal will take place next year, if it can get member backing and the necessary regulatory approval. Its 168,000 members will be sent details in September and will be asked to vote at a special meeting in October.

Details first emerged last month, but Kent Reliance and JC Flowers have been in talks for around 10 months.

For KRBS, the deal announced yesterday provides an innovative way to gain fresh capital to grow – a difficult task for building societies left hamstrung by the credit crisis and squeeze on profit margins as banks have competed ruthlessly for retail savers to finance lending.

And it would offer JC Flowers its long-awaited chance to enter the UK financial services sector.

It considered a bid for Northern Rock before it was nationalised, while it tried and failed to seal a merger with life and pensions group Friends Provident and is recently thought to have pulled out of the running for the Royal Bank of Scotland branches which are for sale.

Mike Lazenby, chief executive of KRBS, said: "Our prime responsibility is to act in the best interests of our members and, after considering the options currently available to KRBS, we believe that acquiring external capital is the best way forward.

"Our use of the industrial and provident society route means members can still be members of a mutual."

KRBS is Kent's only building society and the 12th largest in the UK - having incorporated mutuals including the Kent and Canterbury.

It had assets of 2.26bn in the year to September 2009 and made profits of 2.26m through the worst of the financial crisis.