Cowie to retire as Manchester Building Society takes £28m hit

MANCHESTER Building Society has taken a £28.7m hit on its 2011 earnings after revising the accounting treatment of its long term mortgage book and related interest rate hedges.

It means the society had a pre-tax loss in that year of £21.9m, rather than the profit of £600,000 reported at the time.

The write-down also pushed MBS to a loss of £2.3m in the year to December on income of £11.4m, down from £15.6m. However, it said it increased its trading profit last year from £300,000 to £1.9m.

The building society has also announced the retirement of chief executive David Cowie, who has been with the institution for 24 years and held the top job for half that time.

Earlier in the month MBS said it was raising £18m in anticipation of the write-down. This has been done through a private placement of profit participating deferred shares – capital instruments that building societies can use to strengthen their balance sheets.

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

Chairman David Harding said: “The society delivered an increased level of underlying profitability in 2012; however, as a result of the decision to change the accounting treatment of the long-term mortgage book there has been a material restatement of the society’s opening reserves and an accounting loss for 2012.  

“The £18m of new capital raised through the private placement of PPDS means that the society maintains a sound capital position, and we will look to strengthen this further over time. The board’s focus for 2013 will be ensuring we continue to serve our members effectively in this low interest rate environment with a comprehensive range of savings and mortgage products. The board would like to thank David Cowie for his 24 years of service to the society and wishes him well in his retirement.”

MBS has over 29,000 investing members and 5,700 borrowing members.