Co-operative Financial Services is in takeover talks with Staffordshire-based Britannia, the country’s second-largest building society, it emerged today.

A deal would create a £70bn financial giant with more than nine million customers and 13,000 staff. It could also see the disappearance of Britannia from the high street as Co-op, the financial arm of the supermarkets to funerals group, looks to take on the UK’s main retail banks. 

Customers of either mutual would not get windfall bonuses.

The Financial Mutuals Arrangements Bill will remove obstacles to the takeover when it becomes law by the end of the year. 

Leek-based Britannia say the talks were not due to its ailing financial health. Its first-half profits for 2008 fell £31.2m to £50.5m, mainly due to mortgage arrears.

Co-op, which runs internet bank Smile and is a big provider of insurance and pensions, nearly doubled profits to £73.4m in the first half of this year. Britannia chief executive Neville Richardson stressed talks were at an early stage, adding: “We remain committed to our Leek base.”