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Rescue plan for West Bromwich BS West Bromwich in debt deal talks
(30 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 in talks with debt holders over a deal that could secure its future.
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 conversion that would boost its balance sheet.
The society said it was in "advanced discussions" over a debt deal to boost its balance sheet. However, BBC business editor Robert Peston said that the West Bromwich may still end up merging with another building society.
This will involve holders of debt exchanging it for a new instrument. He added that savers with the West Bromwich would not lose a penny and its mortgage borrowers would be unaffected.
The society's financial difficulties had led to reports that it may be broken up.
Big lossesBig losses
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.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.
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 years
Last month, it denied reports that it was on the verge of collapse.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.
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.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.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 years
The Treasury could also subscribe for some of this capital, according to our correspondent, thus giving the taxpayer a stake in the mutual.
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.


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