Page last updated at 09:27 GMT, Friday, 12 June 2009 10:27 UK

West Bromwich reaches debt deal

West Bromwich Building Society
The West Bromwich has about 350,000 customers.

The West Bromwich Building Society has reached an agreement with debt-holders to boost its financial strength.

The society's difficulties led to fears it may be broken up. Converting £182.5m of debt into capital should avoid this.

Analysts say this will allow the society, which has announced an annual £48.8m pre-tax loss, to keep its independence or to merge at some point.

Savers and borrowers at the West Brom will not see any changes in the ways that their accounts and mortgages work.

The society now has a financial buffer to absorb losses and avoid insolvency.

Controversial?

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

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 the debt-for-equity swap had been set up 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.

The City watchdog, the Financial Services Authority, said that the society's debt-holders would only be paid a dividends on their shares if it made a profit.

Losses 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.

For West Brom doing this deal was probably a no-brainer. The alternative would have been the end of a 160-year history
Robert Peston, BBC business editor

It described its loss of £48.8m in the year to the end of March as "very disappointing", with the society having been hit by difficulties in its involvement with commercial property and buy-to-let lending.

But it said it planned to be predominantly funded by traditional retail savings in the future, withdrawing from the commercial and buy-to-let markets, which are now seen as riskier.

There will also be a focus on lending on homes within the West Midlands, its traditional heartland.

The West Bromwich had "carefully managed and refocused its business, driving through a programme of cost reduction to improve dramatically the efficiency of the Society", said chief executive Robert Sharpe.

Safe home

FROM THE TODAY PROGRAMME

The West Bromwich 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.

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, and it cut its long-term outlook rating for the West Bromwich to BBB+ from A-.

But a spokesman for the society said it remained "a safe and secure home for members' savings".



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FROM OTHER NEWS SITES
Telegraph Mutuals mull West Brom shares plan - 16 hrs ago
The Times West Bromwich saved from collapse - 47 hrs ago
AFP via Yahoo! West Bromwich reaches debt deal - 50 hrs ago
Observer West Bromwich building society saved from bailout - 51 hrs ago
Guardian Unlimited West Bromwich Building Society saved from taxpayer bailout - 54 hrs ago



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