Unlike its local football team, the West Bromwich Building Society appears to have engineered a last-minute survival, following rumours yesterday that it was on the brink of collapse and in need of Government rescue. Although things came to a head yesterday, the society was under similar scrutiny about a month ago as concerns grew over the losses it had incurred – mainly through its foray into commercial and buy to let lending.
The news today is that the society, which employs 850 people and has 46 branches, will escape a complete breakup by swapping its debt for a new form of equity (with the suitably confusing title of ‘profit participating deferred shares’). For a mutual society, owned by its members, not shareholders, this debt swap is a controversial move.
Building Societies have had a rough time of it recently. The fallout from the credit crunch left many of them badly exposed to losses on their lending business – particularly in areas like buy-to-let and sub-prime mortgages (and commercial lending in West Brom’s case).
Then in April this year, several societies had their credit ratings downgraded following stress tests – a bad case of getting kicked when you’re down. The result of all this has been a major shake-up of the mutual sector – here’s a list of the societies that have merged or been rescued in the last 12 months:
|Society||Now part of…|
|Barnsley Building Society||Yorkshire Building Society|
|Dunfermline||Nationwide (and partly nationalised)|
Existing mortgage customers of the West Brom needn’t worry – all this won’t affect their loan or repayments. As for being a member though, we’ll have to wait and see how people react to a new group of ‘shareholders’ taking a stake in their society.