West Bromwich confirms debt deal talks in progress

Published on Thursday 11 June 2009 21:38

EMBATTLED West Bromwich Building Society last night confirmed it was in talks over a debt deal that would boost its capital strength.

The troubled mutual revealed that the discussions over 182.5 million of debt were at an advanced stage and could lead to a deal that would "materially strengthen" its capital strength.

West Bromwich – the UK's eighth largest building society – has been the subject of speculation about a rescue as concerns have grown over its financial health. The deal being worked on was believed to be a debt-for-equity swap by financial institutions who have lent the society money.

Last night West Bromwich refused to go into detail about the talks but said it would make a further announcement "in the near future".

Reports earlier yesterday had suggested the Treasury was looking at a number of options for saving the society.

A rescue sale similar to the one used when the Dunfermline Building Society ran into trouble was one of the options being considered.

The Dunfermline's branch network and savings business was taken over by mutual giant Nationwide.

The government was also said to be looking at whether it could save the West Bromwich by breaking it up and selling off parts of it to other institutions, most probably other mutuals.

West Bromwich has been at the centre of speculation over its future for weeks, despite repeated assurances from the mutual over its health.

The Society – which is celebrating its 160th birthday this year – has almost 600,000 members and employs around 800 staff. It has nearly 50 branches south of the Border.

It is thought the City watchdog, the Financial Services Authority (FSA), has been stress-testing the West Midlands-based mutual. Reports have suggested that auditors were yet to sign off its accounts, amid fears it is close to breaching regulatory capital requirements.

The West Bromwich has denied reports of sale talks and last month sought to give assurances over its "long-term future" as an independent business.

The society's full-year figures, due on Monday, are expected to reveal big losses for the year to 31 March because of its exposure to risk-laden buy-to-let lending.

Concerns have been mounting over building societies and higher risk lending, such as buy-to-let, self-certification and commercial mortgages, as well as loans made to people with poor credit histories.

Rating agencies have recently downgraded a number of players in the sector – with West Bromwich among those seeing their ratings slashed.

The FSA said earlier this month it was launching a new crackdown on societies branching into riskier business without the proper controls in place.