Manchester Building Society incurs losses for 2020

Manchester Building Society slipped to an annual loss, figures published this afternoon (March 2) revealed.

And the firm is still awaiting a decision on its costly legal action against Grant Thornton which has been rumbling on for three years.

Total operating income for the year to December 31, 2020, stood at £7.022m, an improvement on the previous year’s £6.856m.

However, a pre-tax profit of £592,000 in 2019 has become a pre-tax loss of £344,000 for 2020.

An operating profit before impairment of £2,783m showed an improvement on £2.027m in 2019. The society said this was a result of other income increasing by £0.8m due to an increase in income from foreign exchange movements. The foreign exchange gain is, however, largely offset by a £0.5m foreign exchange charge in impairment.

Also, administrative expenses reduced by £0.5m. This included a £0.3m reduction in professional fees, largely in relation to the Grant Thornton legal case.

Other savings were achieved across the cost base. Depreciation reduced by £0.1m following the disposal of the group’s head office building in 2019.

Net interest income in the year was £0.7m lower than in 2019 due to lower margins following the Bank of England base rate reductions in March 2020 and an eight per cent reduction in loan balances as the society continues a managed reduction of the balance sheet.

The group’s reserves reduced in 2020 by £0.6m to accumulated losses of £11.0m. However, the society said it continues to have a strong liquidity position.

Manchester Building Society is at the centre of a costly legal battle with business adviser Grant Thornton relating to a damages claim over audit services.

In 2018 the High Court awarded the society just £315,345, plus interest, of its original £49m legal claim. In May that year it was told it would have to pay almost £2m in court costs, raising concerns for the long-term prospects of the building society.

There have been subsequent appeals and in October 2020 the Supreme Court heard the society’s latest appeal, which it is currently awaiting judgment on.

The board said it continues to engage with its regulators as to its strategic future. The society’s 2018 strategic plan was updated in 2020 and the PRA (Prudential Regulation Authority) has confirmed it will monitor the society’s progress against this revised plan.

It also revealed that it is unlikely it will be able to make PIBS (permanent interest-bearing shares) coupon payments due in April 2021. The society last paid these coupons in April 2016 and the board considers there continues to be uncertainty over the society’s ability to make future coupon payments.