Outlook bleak for historic building society

EMBATTLED Manchester Building Society has posted a £1.4m half-year loss and is in discussions with the regulatory authority about its future because of a capital shortfall.

Total operating income stood at £4.5m for the half year to the end of June (2015: £5.9m) while the pre-tax loss for the period was more than double the total £600,000 loss it posted for the whole of 2015.

The decline in total operating income reflects the continued planned reduction in the size of the building society’s loan book.

It has not been active in the lending market since 2013 and has has no plans to re-enter the mortgage market. Mortgage assets have reduced by approximately 40% over the last three years.

Meanwhile, administrative expenses increased in the period, mainly due to the costs incurred in exploring options to secure the future of the society. It has also continued to incur costs in pursuing its £49m legal claim against previous external auditors Grant Thornton.

The mutual confirmed in a separate announcement that it will not pay the interest due on its permanent interest-bearing shares or Pibs next month. It added that the following payments, due in April next year, were also unlikely to be met and that there was uncertainty over the interest due thereafter.

The Pibs are not cumulative so even if regular payments resume in the future, investors will not receive the missed instalments.

The missed payment is because its half-year loss has given the society a regulatory capital shortfall against the requirement set by the Prudential Regulation Authority.

The society said it is preparing to submit a Capital Conservation Plan to the authority, which will consider potential measures to address the shortfall, but admitted that the outcome and timing of the regulatory process is uncertain.

As with the 2015 results, directors have again warned that the accounts showed a material uncertainty surrounding the mutual’s long-term future, given the continuing decline in the scale of operations.

David Harding, chairman, said: “The continued run-off of the society’s assets, certain specific legacy loan exposures and costs incurred in the development of strategic options with a view to securing the society’s future have impacted financial performance and profitability in the first half.

“The board is continuing to explore a number of options which individually or in combination aim to secure the future of the society, enable it to continue to meet capital requirements and improve the quality of its regulatory capital.”

Total assets have fallen to £379.7m (2015: £465.4m) while the mutual’s reserves fell by £1.7m although its liquidity position remains strong.

Manchester Building Society was founded in 1922 and has one branch on Queen Street. It has around 4,000 mortgage borrowers, as well as about 18,000 savings accounts.

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