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West Bromwich reaches debt deal West Bromwich reaches debt deal
(30 minutes later)
The West Bromwich Building Society has said that it has reached an agreement with debt-holders over a deal to boost its financial strength. The West Bromwich Building Society has reached an agreement with debt-holders to boost its financial strength.
The society's difficulties had led to reports that it may be broken up, but by converting its £182.5m debt into capital, this should be avoided.The society's difficulties had led to reports that it may be broken up, but by converting its £182.5m debt into capital, this should be avoided.
It now has a financial buffer to absorb losses and avoid insolvency.It now has a financial buffer to absorb losses and avoid insolvency.
Analysts say this will allow it to keep its independence or to merge at some point in the future. Analysts say this will allow the society, which announced an annual £48.8m pre-tax loss, to keep its independence or to merge at some point.
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 Controversial?
For West Brom doing this deal was probably a no-brainer. The alternative would have been the end of a 160-year history Robert PestonBBC business editor
The society said the debt deal would strengthen its core tier one capital ratio - the measure of a bank's financial strength from a regulator's point of view - to be amongst the highest in the sector.The society said the debt deal would strengthen its core tier one capital ratio - the measure of a bank's financial strength from a regulator's point of view - to be amongst the highest in the sector.
However BBC business editor Robert Peston said that the way that debt-for equity swap was likely to be "pretty controversial".
This was because the deal offered to the institutions that West Bromwich owed money was similar to giving them regular shares - because it would give the holders a slice of the society's profits.
This equated to a semi-demutualisation of West Brom, but without a stockmarket listing or getting the approval of its members, our business editor added.
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
Losses expectedLosses expected
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.
The society is to report its full-year figures on Monday, which are expected to reveal big losses. It has also revealed it made a pre-tax loss of £48.8 million in the year to the end of March having hit difficulties by its involvement in commercial property and buy-to-let lending.
BBC business editor Robert Peston said the society had hit difficulties because it had "pushed the boat out a bit too much" on commercial property and buy-to-let lending. The society said it planned to be predominantly funded by traditional retail savings in the future.
It has been at the centre of mounting speculation as concerns have grown over its health and recent reports had suggested the mutual could be subject to a Dunfermline Building Society-style rescue sale and break-up.
However the deal may allow it to remain independent for the foreseeable future, our business editor said.
Safe home
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".