Manchester Building Society in £18m fundraising

MANCHESTER Building Society has raised £18m to shore up its finances.

In a statement the society said it had agreed a private placement of profit participating deferred shares – capital instruments that building societies can use to strengthen their balance sheets.

The shares qualify as core equity tier one capital.

It has taken the step because a change in the accounting treatment of its long term mortgage book and related interest rate hedges will leave it with a “material downward restatement” in its 2012 accounts.

No further detail was given on the state of the accounts which will be published on April 30. “The capital issuance will ensure a sound capital base for the society in light of this expected restatement,” it said.

Unlike banks, building societies cannot raise new equity to offset losses. Like bonds, the profit participating deferred shares will pay interest, but like a stock, their value will fluctuate along with the company’s profitability.

Chief executive David Cowie said: “We are pleased to have agreed this fundraising, which will enable the society to maintain a sound capital position as we make a number of changes to the accounting treatment of our long term mortgage book and interest-rate hedges.  

“This initiative, combined with our on-going underlying profitability and robust funding, will enable us to continue to serve our members effectively, providing them with a comprehensive range of attractive products and excellent service. Through the delivery of our strategic plan the board will seek to strengthen the Society’s capital position further over time.”