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Rescue plan for West Bromwich BS Rescue plan for West Bromwich BS
(29 minutes later)
The West Bromwich Building Society is to be rescued within the next few days, the BBC's business editor Robert Peston has learned.The West Bromwich Building Society is to be rescued within the next few days, the BBC's business editor Robert Peston has learned.
Savers with the West Bromwich will not lose a penny and it should be business as usual for the society's mortgage borrowers, our correspondent says.Savers with the West Bromwich will not lose a penny and it should be business as usual for the society's mortgage borrowers, our correspondent says.
The society said it was in "advanced discussions" over a debt deal to boost its balance sheet.The society said it was in "advanced discussions" over a debt deal to boost its balance sheet.
This will involve holders of debt exchanging it for a new instrument.This will involve holders of debt exchanging it for a new instrument.
The West Bromwich employs about 850 staff in 46 branches and has about 350,000 customers. Big losses
Last month, the it denied reports that it was on the verge of collapse. The West Bromwich employs about 850 staff in 46 branches and has about 350,000 customers. It is the UK's eighth largest building society.
Last month, it denied reports that it was on the verge of collapse.
The society is due to report its full-year figures on Monday, which are expected to reveal big losses.The society is due to report its full-year figures on Monday, which are expected to reveal big losses.
Two options
Our correspondent said the society had "pushed the boat out a bit too much" on commercial property and buy-to-let lending.Our correspondent said the society had "pushed the boat out a bit too much" on commercial property and buy-to-let lending.
But if the society can persuade debt holders to convert their debt into capital, then it should avoid being broken up, which is what happened to the Dunfermline Building Society.
The conversion would effectively mean that it acquires a financial buffer to absorb losses and avoid insolvency, allowing it to keep its independence or to merge with another society at some point in the future.
KEY FACTS Employs 850 staff and has 350,000 customersIt has 46 branches, primarily in the MidlandsIt is the eighth-largest building society in the UKHas been a mutual building society for 160 yearsKEY FACTS Employs 850 staff and has 350,000 customersIt has 46 branches, primarily in the MidlandsIt is the eighth-largest building society in the UKHas been a mutual building society for 160 years
He said there were two options available to the UK's eighth-largest building society. The Treasury could also subscribe for some of this capital, according to our correspondent, thus giving the taxpayer a stake in the mutual.
It may be broken up, with its savers transferred to another building society and its assets taken over by the Bank of England under the so-called Special Resolution Regime.
This is what happened to the Dunfermline Building Society. Its branches, good loans and deposits were taken over by the Nationwide in March after incurring losses of £26m.
The other option is the Financial Services Authority and the Treasury may convert some of the debt provided by investors and financial institutions to the West Bromwich into a new form of capital, allowing it to keep its independence or to merge with another society.
The Treasury would probably subscribe for some of this Tier 1 capital too, according to our correspondent, thus giving the taxpayer a stake in the mutual, owning the equivalent of preference shares.
But it is touch and go which option will be settled upon, he says.
Swift deal neededSwift deal needed
David Buik from BGC Partners said he hoped the West Bromwich followed the same route as the Dunfermline.David Buik from BGC Partners said he hoped the West Bromwich followed the same route as the Dunfermline.
West Brom is also more dependent than some societies on wholesale funding, which has become harder to obtain Robert Peston, BBC business editor Read Robert's thoughts in fullWest Brom is also more dependent than some societies on wholesale funding, which has become harder to obtain Robert Peston, BBC business editor Read Robert's thoughts in full
"Let the deposits go to another very strong building society or banking unit and the assets to be put into this special resolutions regime," he said."Let the deposits go to another very strong building society or banking unit and the assets to be put into this special resolutions regime," he said.
"If this issue with the West Brom is a major problem, we want it dealt with clinically.""If this issue with the West Brom is a major problem, we want it dealt with clinically."
He said that the problem was exacerbated by low interest rates, which make it difficult for building societies to attract deposits.He said that the problem was exacerbated by low interest rates, which make it difficult for building societies to attract deposits.
"I suspect that the West Bromwich is not the only one that is under duress and I wouldn't be at all surprised to see the FSA and the government try and recommend many mergers, however desirable it is for people to keep their own brand name," he said."I suspect that the West Bromwich is not the only one that is under duress and I wouldn't be at all surprised to see the FSA and the government try and recommend many mergers, however desirable it is for people to keep their own brand name," he said.
Rating cutRating cut
Last month the West Bromwich, along with four other societies, was downgraded by the credit ratings agency Fitch. Last month, the West Bromwich, along with four other societies, was downgraded by the credit ratings agency Fitch.
The agency said that the weakening economic environment had increased the credit risk of the societies.The agency said that the weakening economic environment had increased the credit risk of the societies.
The long-term outlook for the West Bromwich was downgraded from an A- to a BBB+.The long-term outlook for the West Bromwich was downgraded from an A- to a BBB+.
But a spokesman for the society said it remained "a safe and secure home for members' savings".But a spokesman for the society said it remained "a safe and secure home for members' savings".
Shrinking sectorShrinking sector
The potential rescue of the West Bromwich comes after a series of mergers in the building society sector.The potential rescue of the West Bromwich comes after a series of mergers in the building society sector.
In September last year, the UK's biggest building society, the Nationwide, agreed to stage a rescue takeover of two small societies, the Cheshire and the Derbyshire.In September last year, the UK's biggest building society, the Nationwide, agreed to stage a rescue takeover of two small societies, the Cheshire and the Derbyshire.
Skipton Building Society agreed in November to merge with the smaller Scarborough Building Society.Skipton Building Society agreed in November to merge with the smaller Scarborough Building Society.
The following month, the Barnsley Building Society was rescued by the larger Yorkshire Building Society, the same day as the merger between the Chelsea and Catholic societies was completed.The following month, the Barnsley Building Society was rescued by the larger Yorkshire Building Society, the same day as the merger between the Chelsea and Catholic societies was completed.
Banks have the option to approach their existing shareholders for more capital if they get into trouble, but as building societies are owned by their savers and borrowers that option would not work.Banks have the option to approach their existing shareholders for more capital if they get into trouble, but as building societies are owned by their savers and borrowers that option would not work.
Unfair share
The Building Societies Association has been particularly vocal about the "unfair" level of contribution from societies to the Financial Services Compensation Scheme which aims to protect savers' deposits.
Nationwide chief executive Graham Beale said the charge was not linked to the level of risk posed to the financial system by individual institutions, but instead by the share of the retail savings market.
This, he said, produced a disproportionate outcome for the low-risk retail funded institutions, particularly building societies, and he described the rules as "illogical and unfair".
Are you a West Bromwich Building Society employee or customer? Send us your comments using the form below.Are you a West Bromwich Building Society employee or customer? Send us your comments using the form below.
The BBC may edit your comments and not all emails will be published. Your comments may be published on any BBC media worldwide. Terms & ConditionsThe BBC may edit your comments and not all emails will be published. Your comments may be published on any BBC media worldwide. Terms & Conditions