Building society’s £49m negligence claim

MANCHESTER Building Society has announced it has filed a  legal claim worth more than £49m against former auditor Grant Thornton.

In a short statement to the stock market, MBS said the claim is for breach of contract, negligence and breach of statutory duty relating to audit services and advice provided from 2006 up to and including 2013 when Grant Thornton resigned as the MBS’s external auditors.

It is thought this covers Grant Thornton’s advice and audit services in relation to the implementation and application of hedge accounting by the society.

MBS says that if it is unable to reach a satisfactory agreement with Grant Thornton the matter will progress to a court hearing.

Regulators began investigating a possible breach of accounting rules which caused MBS to seek a capital injection of £18m after it emerged that its accounting did not comply with international standards in 2013.

The Financial Reporting Council (FRC) started to probe into how fixed-rate mortgages were wrongly valued on the lender’s balance sheet.

MBS had taken out interest rate swaps – a form of derivative contract – to offset some of the risk it had incurred when it sold fixed-rate mortgages to its customers.

The discovery that this “hedging” arrangement had not been recorded properly in its financial statements forced the lender to restate its reserves and post a pre-tax loss for 2012.

The UK’s top accountancy regulator, FRC, launched its investigation after receiving information from the Prudential Regulation Authority, the new banking regulator.

A spokesperson for Grant Thornton UK  said: “As a large professional services firm, there are inevitably occasions where we become involved in legal claims. 

“Naturally, our obligations of confidentiality mean that we cannot comment on the detail of any litigation in which the firm is involved.”