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REGULATORY NEWS ANNOUNCEMENT

1 December 2009 

Chelsea Building Society:

Announcement of Merger Discussions with Yorkshire Building Society

Chelsea Building Society ("Chelsea" or the "Society") notes recent press reports in relation to a possible merger with the Yorkshire Building Society ("Yorkshire").  

The Board of Chelsea confirms that the Society is in advanced discussions with the Yorkshire as regards a merger of the two societies.  

The Board of Chelsea has been undertaking a detailed review of the Society's activities, operations, financial position and corporate structure.  As part of this, Chelsea has considered the potential benefits to members and other stakeholders of a merger and this has culminated in discussions with the Yorkshire.  

Chelsea continues to be well-funded and have strong liquidity.  

The merger discussions with the Yorkshire contemplate a capital exchange of Chelsea's subordinated debt into a new subordinated debt instrument of half the principal amount with a fixed interest coupon of 13.5% per annum and a maturity of fifteen years which would be issued by the enlarged Society and be convertible into profit participating deferred shares in the event that the enlarged Society's core tier 1 ratio fell below 5%. The effect of the capital exchange would be to increase the core tier 1 capital position of the enlarged Society by £100m as well as creating £100m of contingent core tier 1 capital.  

Any such exchange would be subject to approval by Chelsea's subordinated debt holders.  

There can be no certainty that a transaction will take place.  For a merger to proceed, the Boards of both societies would need to be satisfied that it will be in the benefit of each society's members.  The merger would also be subject to approval by each society's members and the FSA.  

No action is required by members or other stakeholders at this stage. Further updates will be given as appropriate. 

Enquiries:

Chelsea Building Society

Vicki O'Connell                                                                       01242 271466

07774 169535

Hogarth PR - Advisers to Chelsea Building Society        020 7357 9477

Chris Matthews

Lucinda Kemeny

Rachel Hirst

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