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June 12, 2009

West Bromwich back from the brink

by Gill Montia

Story link: West Bromwich back from the brink

The West Bromwich Building Society has been pulled back from the brink of collapse by striking an agreement with its debt-holders.

According to reports, the Society will be converting £182.5 million of debt into capital, in a move that will allow it to cope with future losses on its commercial and buy-to-let lending books plus writedowns on its financial investments.

However, West Brom may still be looking for a merger partner, having posted a pre-tax loss of £48.8 million for its 2008/09 fiscal year, compared to a profit of £33.1 million previously.

Today’s rescue will increase the Society’s core tier 1 capital ratio from 6.8% to 11.6% (possibly the highest in the sector) but it also compromises its status as a mutual.

The deal is controversial because it takes the form of a debt-for-equity swap, leaving debt-holders with shares on which dividends are payable - a first for a membership-owned building society.

In a further reshape, the lender says it will be withdrawing from the commercial and buy-to-let markets to focus on lending to homeowners within the West Midlands.

The society is the UK’s eighth-largest, with approximately 350,000 customers; it employs around about 850 staff across 46 branches.

 

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