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West Brom BS to be rescued

Robert Peston | 14:33 UK time, Thursday, 11 June 2009

West Bromwich Building Society, Britain's eighth largest building society, will be rescued within the coming days, I have learned.

West Bromwich Building SocietyAn announcement could even come later today.

The UK's eighth largest building society 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 was what happened to Dunfermline Building Society earlier this year.

However the Financial Services Authority and the Treasury are also exploring the possibility of converting some of the debt provided by investors and financial institutions to West Brom into a new form of capital.

This could allow West Brom to keep its independence or to merge with another society in a more normal kind of way - because the new capital would be available to absorb whatever losses the society incurs on its loans.

I am told that right now it is touch and go which of the two solutions will be adopted.

Either way, it is clear that savers at West Brom will not lose a penny - and that it should be business-as-usual for the society's mortgage borrowers.

West Brom has around 350,000 customers, 46 branches, 850 staff and total assets of just under £10bn.

It has run into difficulties because of actual and potential losses on its substantial portfolios of commercial-property loans and buy-to-let mortgages.

West Brom is also more dependent than some societies on wholesale funding, which has become harder to obtain. Just over 30% of its funds come from wholesale sources, as opposed to ordinary retail savers.

The society has lent £1.5bn to commercial property companies and projects, at a time when the property industry is suffering its worst recession for decades.

It also has made £3.1bn of buy-to-let mortgages: many analysts predict that arrears on buy-to-let loans are set to escalate.

West Brom's stock of prime owner-occupied mortgages is just £2.6bn.

The building society sector is going through something of a reconstruction.

The very biggest societies, Nationwide and Britannia, have coped well with the difficult credit-crunch conditions of the past 22 months.

And the very smallest societies, which did not diversify into commercial property and did not raise funds on wholesale markets, have also remained pretty robust.

But the FSA, the Bank of England and the Treasury fear that many of the medium-size societies are perhaps a bit too small to thrive in an economy where access to funding has become more difficult.

So there are likely to be further building society mergers in the months ahead.

That said, West Brom is the only society which is in need of fairly urgent repair.

UPDATE, 15:33: If West Brom is rescued by what would in effect be swapping debt for equity, the Treasury would probably subscribe for some of this newfangled Tier 1 capital too.

So there would be a bit of a first: taxpayers would have a stake in a building society (we'd own the equivalent of preference shares, or - for the delectation of the wonks among you - some kind of reconstructed permanent interest bearing shares, the legendary PIBS).

UPDATE, 16:38: The Treasury won't on this occasion subscribe capital to the rescue. Taxpayers won't be taking a stake in West Brom.

So the choice for West Brom's institutional creditors is to convert some of their debt into quasi-equity or see the society broken up and put into the Bank of England's Special Resolution Regime.

Where will the savers end up? Well in the industry the neighbouring Coventry Building Society is tipped as the new home for West Brom's savers.

Comments

  • Comment number 1.

    This is beyond a joke. We keep hearing of this bank being saved or that bank. And now West Bromwich Building Society! But the fact is: the world of banking and finance will not be saved until some big changes are made. Now is the time to make those changes. This is the moment -

    http://moneyistheway.blogspot.com/2008/06/in-this-moment.html

    I truly believe this is the moment.

  • Comment number 2.

    Just as we though it was safe to go back in to the water!

  • Comment number 3.

    This story has been building for a while and the figures shown above, if correct, show a poisiton considerably worse than the management have been spinning in recent weeks.

    The story circulating locally has been that the FSA asked the Coventry Building Society to step in but they apparently baulked at the idea because of the commercial and buy to let loans.

    I would imagine a best case scenario would be for a takeover of the savings accounts by Coventry with the loans thrown into the B&B; Dunfermline and other government controlled toxic loan books.

    This would probably keep most of the branches open but would no doubt see the West Brom Head Office close.

  • Comment number 4.

    So would I be right in thinking that the difference between the West Bromwich and Dunfermline building societies is that the Dunfermline was Scottish and Brown saw an opportunity to embarrass the SNP Government.

  • Comment number 5.

    Did someone actually say that the recession was over?

    Ask him to do some figures that show the effect of the huge amounts of quantititive easing on the economy and what will happen when this comes to an end?

    The mind boggles at the prospect.

    Or will QE continue until inflation wipes out any hope of a recovery or even worse plunges the country into depression.

  • Comment number 6.

    business as usual until whoever takes them over closes all the branches and makes all the staff redundant I guess, like the C&G announcement earlier in the week??

    anyway, the NIESR and others are today saying that the recession is as good as over; I wonder why you haven't reported this

    I also worry for the sanity of many regular Peston bloggers if there is no longer an economic disaster to discuss; what will people do?

    And what will happen to your blog? will it be taken down?

    And will the BBC redesign the jagged, downward pointing arrow of economic gloom logo?

    So many questions and so few answers

    personally I think we all need a break for the rest of 09 before the 2nd part of the W-shaped recession, driven by stagflation, gets going properly in 2010

    and don't worry fellow Pestonites, there will be lots of economic worries to worry about for the foreseeable future

  • Comment number 7.

    ''But the FSA, the Bank of England and the Treasury fear that many of the medium-size societies are perhaps a bit too small to thrive in an economy where access to funding has become more difficult.''


    Which translates into a dozen or more will leave the high street leaving consuemrs with less choice for savings and mortgage products.


    With less choice comes less competition which means consumers lose out again.

  • Comment number 8.

    There's a lot of psuedo-optimistic talk about the end of recession being nigh. Let's think about why this isn't the case.

    Look at the unprecedented efforts made by the government and financiers to put more money into the system. Interest rates at half a point; government borrowing the highest ever (in monetary terms); money being printed. Of course, if you flood the system with money things will pick-up, but this success is really storing up greater failure - I'd like to be excused from being accused of showing a Fabius-type character who sees the gloom in everything.

    If successful and lending re-starts then the excessive amount of money will lead to inflation in two ways: the first is that the pound will lose value and we'll be importing inflation that way; the second is that in an attempt to keep up the real value of the debt that lenders have leant they will raise interest rates. This will mean that companies will have to raise prices - workers will demand higher wages -companies will have to raise prices - and so on. How can this end?

    Well, I doubt the traditional remedy of raising interest rates by the Bank of England will work because interest rates will be the problem; more money can't be printed without increasing the inflation we're trying to get out of; and government can't subsidise because of the weakness of the pound.

    It looks like we're heading for the worst of all worlds: inflationary depression.

    The key to the whole is issue is debt and the means of exchange. Yet these are the issues that are not being dealt with by governments or by individuals. In fact, understandably, debt is actually increasing; and there means of exchange is being corrupted and devalued further!

  • Comment number 9.

    So... is West Bromwich in Scotland?

  • Comment number 10.

    Here is another example of wreckage from over-priced property.
    REPOSESSION LOSSES ARE ALL BEING ADDED TO YOUR TAX BILL.
    That is why banks and governments must keep a tight control on property valuations.
    The taxpayer is already propping up the property market, and the majority of the damage of the last few years has been converted into taxes for all of us.
    PROFITS FROM OVER PRICED PROPERTY NOW GO INTO PRIVATE POCKETS, BUT LOSSES ARE GIVEN TO THE TAXPAYER. (Just like the banks).
    Those who believe that it will be good when the property market starts to rocket again, are deluding themselves....overheated property market equals taxes, taxes, taxes.
    We must never again haemorrhage public money down the gaping drain of over-priced property.
    Governments must learn, learn, learn.

  • Comment number 11.

    The House of Cards or is it the Domino effect?
    Either way the Financial Authority does seem to have their dirty fingers in this one as well.
    Never mind, as there will only be an elected House of Lords shortly, we surely can look forward to the fact, that those responsible will not be collecting the ermine as a bonus.

  • Comment number 12.

    I realise that as a journalist, Mr Peston has a duty to the public, but let us hope that his keenness to break headline grabbing stories does not cause a panic amongst the members, escalating a situation that the FSA is, no doubt, well on top of, into a major incident along the lines of what happened following the Northern Rock release.

  • Comment number 13.

    The Chief Executive of this Society flatly denied that the Society was in this parlous financial state just a few days ago. If the BBC is correct, obviously the CE was not telling the truth. It is unfortunate when promiment financial leaders cannot be trusted to tell the truth.

  • Comment number 14.

    Another day another bust bank.

  • Comment number 15.

    Ive had an account with West Bromwich BS for many years and to see it go from friendly local BS to *hard sell harassment* attitude was depressing.
    It became a phycological battle with them just to get my paying in book off them on a number of occasions - they hold onto it at the counter and try for all they are worth to sell and to anyone - the other week I witnessed a guy in his eighties being harassed even though he told the women his age she kept on and persuaded him to go into a one to one room.

    This is the world Gordon Brown has brought us.

  • Comment number 16.

    With regard to the comment about the Britannia what part of merging with the financially sound co op bank can be taken as coping well?

  • Comment number 17.

    This should come as no suprise. West Bromwich BS is run by the same Chief Executive, Finance Director (plus a couple of others) that oversaw the demise of Portman Building Society into Nationwide a couple of years back.

  • Comment number 18.

    Wee Scamp there are lots of labour marginal seats in the part of the West Midlands where the West Brom BS are strong.

    Both West Bromwich MP's are Labour MP's and the MP for West Browmwich East is Tom Watson possibly Gordon's best friend and until the recent reshuffle the Cabinet Office Minister.

    It was him that resigned from Government and called for Tony Blair to stand down in 2006 and also he was one of the two Labour MP's caught up in the Cameron spoof on YouTube. he was also caught up in the damian McBride story

    Blair stand down story

    http://news.bbc.co.uk/1/hi/uk_politics/5319854.stm

    cameron story

    http://news.bbc.co.uk/1/hi/uk_politics/6048202.stm

    McBride story

    http://news.bbc.co.uk/1/hi/uk_politics/5319854.stm

  • Comment number 19.

    This has actually made me chuckle - the finance director of the building society I work for recently left us to go work at the West Brom BS. The same director who oversaw us get heavily involved with Icelandic banks, Bradford and Bingley and even to a limited extent, the Dunfermline! Good to see he's keeping up the good work.

  • Comment number 20.

    I would love to know where Mr Peston gets his information from & what benefit he feels he brings to this country in leaking the information he obtains. While many people are responsible for helping this current financial crisis on its way, Mr Peston in my mind has damaged this country forever by the constant leaks of "information" which frankly are not in the public interest & actually just cause worry & distress. It will be interesting to see whether you actually publish this but it is the feeling of many responsible people in the city who did not contribute to the situation we find ourselves in today, not everyone in the city has been reckless with other peoples money.

  • Comment number 21.

    15 This is the world Gordon Brown has brought us.

    Brown gets blamed for everything....... I think you lot should look at history! Maggie changed this country far more, and caused so much more suffering.

  • Comment number 22.

    So when Robert Peston, two months ago in his blog on 30th March 2009, stated:

    The rest of the building society sector is in pretty good shape.
    Barring an economic disaster, no other substantial building society is expected to need rescuing in this way. So it remains the case that the UK's building societies have weathered the recession better than our commercial banks.


    (link here at: Robert Peston's BBC blog - How Dumfermline fell)

    can we then take a single word of Robert's blogs seriously.

    A wise man admits their mistakes, and learns from them to become wiser.
    A fool carries on regardless.

    OK, Nationwide seems to be able to carry on without problem for now, but with Brittania being forced to merge with Co-op, and other problems across the sector, the statement that the rest of the building society sector is in pretty good shape seems (and remains until retracted) as if it were a distorted piece of incorrect propaganda.

  • Comment number 23.

    A week ago we were being told that the worst is over for the financial sector. The West Brom is not large...but!

    The fact is that the financial system is effectively bankrupt because of a combination of greed, stupidity,poor regulation and ultra low interest rates. They are all dead men walking! The only fix is to return to sound money (i.e. proper higher interest rates). This will flush out the problems and these can them be fixed. Doing nothing as we are now means no recovery!

  • Comment number 24.

    West Brom is rescued but Northern Rock was bailed out.

    Come on Robert were is all the sensationalist rubbish you spout gone.

    Why aren't you reporting the liabilities of the bank, ignoring the fact it has more assets then dividing them between the amount of the people UK and then showing graphics of people walking with this amount floating above them. What about the black holes and the harping on about taxpayers money.

  • Comment number 25.

    21#

    "Brown gets blamed for everything....... I think you lot should look at history! Maggie changed this country far more, and caused so much more suffering"

    It's early days

  • Comment number 26.

    Bradford and Bingley,Bristol and West,Dunfermline,The Cheshire, The Derbyshire,The Principality, Norwich and Peterborough,The Portman, Britannia besides being Building Societies that have or are about to disapear, they all have 2 things in common. They had enourmous appetites for Sub Prime Lending, BTL and Commercial Lending and set up Specialist Lenders to dish this money out without any real thought - either under their own names or under names such as Platform, Astra, Nemo, TMW. If that wasnt bad enough they bought loans from Sub Prime Lenders such as GMAC and SPML (Lehman Brothers)in massive quantities It was driven by pure greed, and now they are reaping what they sowed

  • Comment number 27.

    Mr Brown does not receive just the blame...but also the contempt and derision for his inadequate perfomance in setting up the Tripartite System and then crowing to the world about the Brilliant City. And then raping shareholders by claiming he was rescuing them. And now he wants to market his remodelled BSs etc. And take the kudos, and even the glory.....Oh what a brilliant Manager and Entrepreneur am 'I' ?

    I do not/did not vote... but at the last Euro election many of my 'educated' friends either abstained or voted for the Greens or for UKIP. Among them some previously very close to Blair and Brown.

    The PM has lost the respect of so many close to him. And so have his Parliamentary and Civil Service colleagues. Balls and Cooper and O'Donnell are amongst those discussed with unalloyed bile.

    How dare this Gov't cling to Office ! Every month that will pass will add to the sadness of those who know our democracy has become all but meaningless.

  • Comment number 28.

    There seems to be a a mood of optimism, this could be because people are fed up with the doom and gloom. However Sir Philip Green said on a BBC programme recently that banks are not lending to business, and furthermore a Economics Nobel Prize winner said on HardTalk that there could be another stimulus package of $500 billion in the USA, on top of the fact that there are potentially a million more jobs losses yet to come in the UK, personally I don't think we're home and dry yet and there is indeed more doom and gloom to come, I hope I'm wrong, but I don't think I am.

 

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