Co-operative Financial Services (CFS) and Britannia Building Society are planning to merge.

Though some branches may have to close if they are too close to each other, the companies have claimed there will be no compulsory redundancies.

The new business that will be created will be a subsidiary of the Co-operative Group. Therefore Britannia customers will become Co-op members.

The merger is only possible due to a new law that will be passed in March, allowing mergers between mutuals.

The Butterfill Bill, as the Act will be commonly known as, after its sponsor, MP Sir John Butterfill, or the Building Societies (Funding) and Mutual Societies (Transfers) Act, will give building societies greater freedom to merger with other companies.

The Bill will also change current restrictions on the way they are allowed to raise money.

On the less positive side, the deal will have to be approved by Britannia members, and may take up to three years to complete.

Britannia chairman Rodney Baker-Bates said: “Customers will be owners and ill have available all the services they would expect from a financial provider, together with a real say in setting strategy combined with a share of the profits.”

Once merged, the business will have around nine million customers, over twelve thousand employees, three hundred branches and twenty corporate banking centres.

There may be some closures where the merger will mean more than two banks in one area will be a part of the Britannia/Co-op group, but the companies have promised that there will be no compulsory redundancies among the staff.

The two financial services have said they will continue to have significant presence in Manchester, where CFS is based, and Leek in Staffordshire, where Britannia is based, but have warned of possible redundancies in the head-offices.

CFS chief executive David Anderson said: “owing to the damage done by the credit crunch, people have been crying out for a new way of doing business with a financial organisation of substance that truly has their interests at heart. This merger will create that organisation and we’d hope to attract many thousands of new customers as a result.”

The two companies have said that customers should not see any immediate change in the service they receive.

Also, enlarged businesses will continue to trade under the Co-op and Britannia brand names. Therefore, anyone with savings accounts at both organisations will retain their separate £50,000 deposit protection offered for each business by the Financial Services Compensation Scheme (FSCS).

Both Britannia and the Co-op claim they are not suffering any financial troubles, with a combined profit of £267 million in 2007.

Britannia have revealed though, that its 2008 earnings would be dented by losses on money lent to two banks which collapsed in the past year, and the cost of contributing to the replenishment of the FSCS, which the government have used to bail out banks like Bradford and Bingley and Icesave.