Page last updated at 21:53 GMT, Thursday, 11 June 2009 22:53 UK

West Bromwich in debt deal talks

West Bromwich Building Society
The West Bromwich's savers may be transferred to another building society

The West Bromwich Building Society is in talks with debt holders over a deal that could secure its future.

The society said it was in "advanced discussions" over a debt conversion that would boost its balance sheet.

BBC business editor Robert Peston said that the West Bromwich could remain independent or end up merging with another building society.

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 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.

KEY FACTS
Employs 850 staff and has 350,000 customers
It has 46 branches, primarily in the Midlands
It is the eighth-largest building society in the UK
Has been a mutual building society for 160 years

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.

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.

David Buik from BGC Partners, who said he had hoped the West Bromwich would follow the same route as the Dunfermline, warned that other building societies could come under pressure to merge.

"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.

West Brom is also more dependent than some societies on wholesale funding, which has become harder to obtain
Robert Peston, BBC business editor

Rating cut

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 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".

Shrinking 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.

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.

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.


Are you a West Bromwich Building Society employee or customer? Send us your comments using the form below.

Name
Your E-mail address
Town & Country
Phone number (optional):
Comments

The BBC may edit your comments and not all emails will be published. Your comments may be published on any BBC media worldwide.




Print Sponsor


RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites



FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

BBC navigation

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific