Mutual's link-up may herald new era

US buyout group JC Flowers and KRBS are expected to unveil details later this week of a groundbreaking deal that will see the private equity giant invest 50m in a joint venture, amid plans for a raft of similar moves.

JC Flowers, which considered a bid for Northern Rock before it was nationalised, is aiming to add more struggling building societies to the new vehicle set up with KRBS.

Flowers will take a stake of around 49 per cent in the joint venture, which will house KRBS's loans and savings deposits, but the society will retain majority ownership and its brand name.

The deal will be the first of its kind if it gets regulatory and member approval, but Flowers is hoping it can pull off many more similar investments in the stricken sector under long-awaited plans to gain a foothold in UK high street banking.

For KRBS the deal will provide it with much-needed capital strength and allow it to expand.

A raft of players have already merged to survive, with Nationwide rescuing a number including Dunfermline, Cheshire and the Derbyshire. Other mergers include Britannia and Co-operative Financial Services and Yorkshire joining forces with Chelsea.

However, the Flowers proposition is an unusual alternative that will offer societies a chance to gain vital funding from the private sector while not losing their mutual status.