Britannia Building Society confirmed this morning that it was in talks with Co-Operative Financial Services (CFS) which could lead to a merger of the two mutuals in the face of the growing economic turmoil.

A combination of the two building societies, possible under upcoming legislative changes that make it easier for different types of mutuals to work together, would create an organisation with six million customers and about £70 billion of assets.

Britannia, the UK’s second biggest building society, said the talks were at a very early stage and would cover a wide range of options as to how the two organisations could work together, including a possible future merger. It added a deal would represent “a merger of strong equals.”

Neville Richardson, Britannia’s chief executive, said the businesses did not need to merge but that both recognised they could be more successful by coming together.

A merger between the two mutuals, which is currently illegal, will be enabled by the introduction of measures contained in the Building Societies (Funding) & Mutual Societies (Transfers) Act - known as the Butterfill bill, after its sponsor Sir John Butterfill MP, which should be in place by the end of this year.

A merger would also have to be approved in a vote by Britannia's members.

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