Confidence in the already nervous financial sector has taken a further knock with the news that the West Bromwich building society was about to be rescued by a large rival.

Reports that the Financial Services Authority (FSA) has been putting together a deal which involves the Yorkshire and Coventry building societies, has angered the West Bromwich which says that it well capitalised and is not aware of any takeover talks taking place.

A spokesperson for the West Bromwich said: "In common with other financial institutions, the West Brom has been working closely with the FSA in relation to its funding and capital position, including the current stress-testing exercise being conducted on a number of the larger building societies.

“The society has not received any indications from the FSA in relation to the results of this exercise, which commenced only recently. Furthermore, the West Brom has no knowledge of the FSA holding merger discussions relating to the society."

West Bromwich is said to have received special attention because of its keenness on not only the now unpopular buy-to-let domestic property market, but also the equally distraught commercial market.

But the building society has since explained that it got out of commercial lending over a year ago and also does not lend to the buy-to-let market, or the non prime domestic market.

The building society’s last annual report shows that it owns mortgage securities, considered as sub-prime, worth a total of £240 million.

West Bromwich would not be the first society with such a portfolio to be sorted out by the authorities. The Dunfermline was part-nationalised and the Britannia merged with the Co-Op.

City analysts believe that the building society sector is due for further consolidation as the global downturn takes its toll. The Nationwide has already swallowed up both the Derbyshire and the Cheshire. The sector still boasts 52 societies with 30 million customers.

Guest Article by Neil Camp