Manchester Building Society returns to annual profit

Manchester Building Society has returned to annual profit, its results for the year to December 31, 2019, revealed today.

The society has suffered a tumultuous two year period due to a costly legal battle with accountants Grant Thornton.

Total operating income for the year was £6.856m, down from £8.929m the previous year.

However, the society made a £592,000 pre-tax profit for the period, against a pre-tax loss of £937,000 in 2018.

It achieved an operating profit, before impairment, of £2.027m, which was a turnaround from a £1.256m loss.

It said this was due to administrative expenses reducing by £5.3m.

This included a £4.6m reduction in costs in relation to the Grant Thornton case, and net interest income in the year being £900,000 lower than in 2018, primarily due to an 11% reduction in loan balances as the society continues a managed reduction of the balance sheet.

Other income fell by £1.1m due to a £400,000 reduction in income from foreign exchange movements and a £300,000 reduction in rental income following the sale of the group’s head office building.

The 2018 figure included £300,000 damages from the legal claim against Grant Thornton.

A charge of £1.8m was recorded in respect of the society’s Spanish lifetime portfolio following lower than expected house price growth and a reduction in redemption activity.

The group’s reserves increased in 2019 by £600,000 to negative reserves of £10.7m. However, the society said it continues to have a strong liquidity position.

It said the 2019 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.

Following the society’s unsuccessful appeal against the first instance judgment relating to the claim for damages against Grant Thornton in January 2019, the Supreme Court will review the judgment. The hearing is scheduled for October 2020.

The long-running case is related to issues over hedge accounting at the society, which was forced to shore up its finances with an emergency £18m capital injection in 2013.

As a result it launched a £49m negligence claim against Grant Thornton over advice in relation to hedge accounting in early 2015.

The High Court awarded damages of just £335,727 to the society in May, 2018.

Costs were also awarded to Grant Thornton which have amounted to around £2.5m.