Building society’s losses deepen and doubts remain over long-term future

Manchester Building Society has seen losses deepen, and again warned on its long term future prospects.

Announcing its annual results for the year to December 31, 2018, today, the society said total operating income had dropped from £9.58m to £8.929m.

Administrative expenses and depreciation widened from £7.955m to £10.185m, while the pre-tax loss deepened to £937,000, compared with £780,000 the previous year.

The society’s total assets fell from £304.191m to £277.385m.

Last year the society lost a damaging court battle relating to audit services provided by former auditor Grant Thornton.

On May 2, 2018, the High Court awarded the society damages of £335,727, including interest, considerably below the £49m amount claimed. However, costs of around £2m were awarded to Grant Thornton.

The society appealed this decision, which was heard in mid-January 2019, and on January 30, the Court of Appeal dismissed the society’s appeal and upheld the first instance judgment.

Manchester Building Society said it expects that it will have some further liability to pay costs to Grant Thornton following a detailed cost appraisal, the timing of which is not yet known.

Today’s statement said administrative expenses increased by £2.2m owing to additional legal fees relating to the claim for damages made against Grant Thornton.

It added: “The fees included a net charge of £2.3m in respect of an interim cost order in favour of Grant Thornton and an additional sum accrued to cover the directors’ best estimates of any remaining liability.

“The impact from the increase in legal costs was partially offset by savings within the cost base including a £0.5m reduction in contractor fees.”

It added: “The group’s reserves reduced in 2018 by £1.3m to negative reserves of £11.3m. The reserve movement includes a £0.3m reduction following the adoption of IFRS 9-Financial Instruments on January 1, 2018.

“The society continues to have a strong liquidity position,” it added.

The society also warned that it might not make its PIBS (Permanent Interest Bearing Share) coupon payments, due next month, as it does not have the right mix of capital.

It added: “The 2018 accounts have been prepared on a going concern basis of accounting and, as with the accounts for previous years, set out a ‘material uncertainty’ regarding the long-term future of the society.

“The board continues to engage with its regulators as to the strategic future for the society.

“In June 2018 a strategic plan was produced by the society, which was independently reviewed, and against which the PRA (Prudential Regulatory Authority) will monitor the society’s progress.”