Cheltenham & Gloucester PLC

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Cheltenham & Gloucester PLC

Barnett Way
United Kingdom
Telephone: +44 1452 372372
Fax: (+44) 1452 373955
Web site:

Wholly Owned Subsidiary of Lloyds TSB Plc
Incorporated: 1850
Employees: 4,500
Total Assets: £52.2 billion ($87.7 billion) (2002)
NAIC: 522292 Real Estate Credit; 522120 Savings Institutions

Cheltenham & Gloucester PLC (C&G) is the third largest mortgage bank in the United Kingdom and represents the home mortgage arm of parent company U.K. banking giant Lloyds TSB. As such, C&G sells its mortgage products through the more than 2,300 branches of the Lloyds TSB banking network. Yet C&G also has established its own independent sales channels, including its C&G Mortgage Direct telephone sales division; C&G Invest Direct, which offers investment products in the postal and telecommunications sectors; and, since the mid-1990s, an active Internet sales operation. C&G is itself a symbol of the transformation of the U.K. building society sector, sparked by the Building Society Act of 1986. Formed more than 150 years ago, C&G has seen its assets leap from slightly more than £7 billion ($14 billion at the time) in the early 1990s to more than £52 billion ($87 billion) in 2002. The company is also one of the most recognized branded names in the U.K. mortgage sector.

Building a Building Society in the 1850s

The building society movement responded to the upsurge in demand for new urban housing amid the Industrial Revolution of the United Kingdom in the 19th century. Early forms of lending, or mutual aid, societies had already been in existence since the late 18th century, where members pooled resources and took turns building their homes or businesses. These pools, known as "terminating societies," generally disbanded after the last member had used his share.

While the early mutual aid societies catered to the more affluent artisan and middle classes, the surging urban working class population and the need to provide new housing inspired the emergence of a different type of mutual aid society. The idea for a "permanent" building society was first proposed in 1845, and that year saw the founding of the first of the new generation of building societies.

The new society began providing loans to its members, rather than direct payments provided by terminating societies. With members expected to repay their loans, the new building societies could then begin building up a more solid asset base, from which they could pay interest on members' accounts. This in turn led the building societies to develop savings accounts and services, taking on aspects of traditional banks. The building societies were able to counter the lower wealth of their working class member base with larger and fast-growing numbers.

The idea caught on quickly. By 1860, the United Kingdom boasted more than 2,700 building societies. Whereas London itself accounted for nearly a third of this total, the building society movement had spread quickly throughout the entire country. Many of the new building societies were focused exclusively on a local and regional level. Such was the case with the Cheltenham & Gloucester Permanent Mutual Benefit Building Society and Investment Association (C&G), which was created in 1850 in Cheltenham.

Despite its name, the new society's offices remained based in Cheltenham, operating out of that town's Belle Vue Hotel. In 1896, however, C&G made good on its name, opening a branch office in Gloucester. Three years later, the building society, which remained quite tiny, opened its first permanent office, on Cheltenham's Clarence Street. Over the next half-century, Cheltenham & Gloucester added new branch offices to serve its region.

Progressive legislation, including the Building Society Acts of 1874 and 1894, had by then codified the building society movement, providing a solid base for the industry while putting into place a number of safeguards to protect society members. As a result, the numbers of building societies dropped back to just 1,700 on the eve of World War I. At the same time, and despite its importance in the construction of new homes for much of the British population, the building society movement remained relatively modest. At the outbreak of World War I, total assets among all building societies reached just £76 million.

Postwar Survivor

The transformation of the building society movement began especially in the years following World War II. With the passage of the Building Society Act of 1939, building societies were required to establish more stringent mortgage guarantee standards. At the same time, building societies remained limited in the range of services they were allowed to offer. In the aftermath of the war and the necessity of reconstruction, the societies faced new competition from the nation's large, wealthy banks, which began competing heavily for the new mortgage market. Rising interest rates demanded by the British government in the early 1950s also cut into the building societies' margin of movement.

Yet Cheltenham & Gloucester's relatively large sizewith five branches and nearly £15 million in assetsat the beginning of the 1950s enabled it to resist the new government-imposed rate hike. By maintaining its mortgage rates, C&G was able to position itself as a low-cost alternative. This gave the company an edge during the decade, as the United Kingdom underwent a building boomwith new construction topping more than 300,000 homes per year. As a result, C&G embarked on a new era of growth.

By the middle of the decade, the society's membership had swelled to more than 55,000 shareholders and depositors, of which some 27,000 were borrowing members. C&G's asset base also expanded strongly, leaping from £22 million in 1954 to more than £36 million in 1960. By then, the society also had expanded its branch network, to a total of seven.

The passage of a new Building Societies Act in 1960 restricted the size of loans, especially to corporate customers, in an effort to ensure liquidity of assets. Two years later, that act was replaced by a new Building Societies Act, which consolidated all previous legislation, further restricting the sector. As a result, the building society sector moved toward its own consolidation.

C&G, which remained among the top 20 building societies at the time, became an early participant in the first wave of consolidation, taking over two smaller societies, Yeovil and South Somerset Mutual Building Society and Vale of Evesham Permanent Building Society, that year. Other acquisitions followed, and by the beginning of the next decade, C&G had been transformed into a society with assets of more than £150 million and more than 45 branchesincluding new branch office openings that year in Manchester, Leeds, Glasgow, Devizes, and Cardiganoperating through much of the United Kingdom. C&G also boasted lowered management costs with the addition of its first computer system in 1969.

The early 1970s marked a new wave of industry consolidation, as the total number of building societies shrunk back to just 450. At the same time, a small number of more powerful societies had been emerging, and by the mid-1970s, the top 30 societies accounted for more than 85 percent of the total market. Cheltenham & Gloucester remained a primary player in the consolidation of the building society sector, adding such acquisitions as those of Smethwick Building Society and Tewkesbury and District Building Society in 1973.

By 1974, the society's assets had nearly doubled, and by 1977, C&G boasted assets of more than £500 million. The company opened its 100th branch office in Pershore two years later. Meanwhile, C&G also distinguished itself as an aggressive creator of new banking products, such as the launch of new investment vehicles in the early 1970s and the creation of its own "Paddington Bear" children's savings account at the end of the decade.

In 1981, C&G had a new hit product with the launch of a groundbreaking, high-interest Gold account. Interest in the new type of account proved so strong that, just six months after its launch, the bank was forced to suspend new accounts for some two months. The new inflow of capital provided by the Gold product enabled the company to step up its mortgage lending wing, and by the end of the decade, C&G emerged as one of the nation's top ten building societies.

C&G's rapidly growing market strength also gave it an edge in the developing consolidation of the building society sector in the 1980s. The society now embarked on an aggressive acquisition campaign, which lasted more than a decade. Among the group's additions were smaller groups Cotswold Building Society in 1983 and Waltham Abbey Society in 1985. C&G also attempted to merge with a large rival, Alliance, in 1984, but that deal fell through. Nonetheless, by then C&G's total assets had reached £1.5 billion and its number of total branches neared 175 by the decade's end.

The field of building societies continued to shrink through the 1980s, dropping from slightly less than 200 at mid-decade, to only 100 at the start of the 1990s. Part of the reason for this was the passage of the new Building Societies Act of 1986, which ushered in a new era of British banking history. Under the new act, building societies were at last allowed to extend the range of products beyond their traditional mortgage and savings products to include a larger array of financial services. Building societies also were given the right to convert their status to full bank status, sparking a wave of public offerings in the 1990s.

Company Perspectives:

While remaining focused on its core business of mortgages and investments, C&G, now the UK's third-largest mortgage lender, has massively expanded its customer base and become a key component of one of the world's best-known financial services providers.

Joining a Banking Empire for the New Century

C&G at first joined in the fray, stepping up its acquisition program in the late 1980s, with acquisitions including the Bolton Building Society, and, between 1989 and 1991, the Guardian Building Society, and societies in Peckham, Walthamstow, Bedford, and Portsmouth. C&G's asset base rose accordingly, topping £7 billion at the start of the decade, and climbing past £16 billion before the middle of the 1990s. C&G also had taken advantage of the loosened rules, adding new products such as brokerage services and unit trust dealing services.

Abbey Life became the first building society to take advantage of the right to convert its status, becoming a full-fledged, publicly held bank in 1989. C&G began preparing its own conversionwith a difference. At the end of 1993, C&G let it be known that it was interested in becoming part of a larger group. By early 1994, the society announced that it had agreed to be purchased by the Lloyds Bank Group.

Founded in 1765, that banking group had expanded through the first half of the 20th century into a worldwide banking operation. By the early 1970s, Lloyds was present in more than 40 countries worldwide. During that decade, Lloyds joined the "bancassurance" movement, combining banking and insurance operations, then adding other financial services, including home mortgages, real estate agency operations, and merchant banking through the 1980s. Yet the bank's exposure abroad, particularly in South America, led it to begin a restructuring effort, refocusing itself on its core U.K. market in the 1990s. The acquisition of C&G played an important part in the drive to become a more purely British financial services leader.

Cheltenham & Gloucester formally converted its status to PLC in 1995, and became a Lloyds subsidiary that same year. The move marked the first time one of the United Kingdom's building societies had used the provisions of the 1986 legislation to allow itself to be acquired by a banking corporation outside the building society sector. After Lloyds completed its next acquisition, of the TSB Bank network, becoming Lloyds TSB in December 1995, Cheltenham & Gloucester found itself as part of one of the United Kingdom's leading financial empires.

Under Lloyds TSB, C&G gained access to the group's more than 2,300 branch offices. C&G now became the number three home mortgage provider in the United Kingdom. In 1997, C&G took on greater weight in the market when it absorbed TSB's home mortgage operation as well. By the beginning of the new century, C&G's support network included more than 4,500 employees and three regional administration centers, in Gloucestershire, Hampshire, and Warwickshire, as well as its own branded network of branch offices.

C&G continued to offer new products at the dawn of the 21st century. The company joined a movement among mortgage lenders to offer a restricted, two-tier, cut-price mortgage producta move that led C&G, as well as its rivals, into trouble with the Financial Ombudsman Service, which insisted that the lower-priced mortgages be rolled out to all customers. In 2003, C&G launched a more promisingand less controversialproduct, its own credit card, the C&G Platinum. After more than 150 years in operation and with total assets topping £50 billion, Cheltenham & Gloucester had claimed a solid position among the United Kingdom's home mortgage leaders.

Key Dates:

The Cheltenham & Gloucester Permanent Mutual Benefit Building Society and Investment Association (C&G) is founded in Cheltenham.
C&G opens its first branch office in Gloucester.
C&G opens its first permanent head office in Cheltenham.
C&G acquires Yeovil and South Somerset Mutual Building Society and Vale of Evesham Permanent Building Society.
The company introduces its first computer system, enabling significant management cost savings.
The company launches the groundbreaking, higherinterest Gold account.
The Cotswold Building Society is acquired.
The Waltham Abbey Building Society is acquired.
Continuing its aggressive acquisition program, the company acquires the Bolton Building Society, the Guardian Building Society, and building societies in Peckham, Walthamstow, Bedford, and Portsmouth.
The company converts to PLC status and is acquired by Lloyds Bank Group, which acquires TSB Bank that year to become Lloyds TSB.
The company absorbs TSB's home mortgage business, becoming the dedicated home mortgage division of Lloyds TSB.
The company launches the first C&G credit card.

Principal Subsidiaries

C&G Mortgage Direct; C&G Invest Direct.

Principal Competitors

Royal Bank of Scotland Group PLC; Nationwide Building Society; Northern Rock PLC; Bradford and Bingley PLC; Britannia Building Society; Bristol and West PLC; Yorkshire Building Society; Portman Building Society; Yorkshire Bank PLC; Coventry Building Society; Coutts and Co.; Chelsea Building Society.

Further Reading

Inman, Phillip, "Lenders Told to Pay Out," Guardian, June 22, 2002.

McConnell, Sara, "C&G Savers Win Taxation Fight," Times, February 5, 1997, p. 23.

Merrell, Caroline, "C&G Savers Celebrate Revenue Climb Down," Times, March 28, 1997, p. 26.

Nugent, Helen, and Caroline Merrell, "C&G Forced to Drop Cut-Price Loans," Times, September 11, 2001.

M.L. Cohen