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RNS Number : 3279Z
Manchester Building Society
14 March 2017
This announcement contains inside information
Manchester Building Society Results for the year ended 31
December 2016
Manchester Building Society ('the Society') reports a loss of
GBP3.4m for the 12 months ending 31 December 2016.
2016 2015
GBP000 GBP000
Total operating income 9,210 9,758
Administrative expenses
and depreciation (8,663) (6,841)
---------- ----------
Operating profit before
impairment 547 2,917
Impairment losses (3,448) (3,219)
Financial Services Compensation
Scheme levy (67) (277)
---------- ----------
(Loss) for the period before
taxation (2,968) (579)
Tax (expense) (382) (4,295)
---------- ----------
(Loss) for the period (3,350) (4,874)
---------- ----------
Total assets 382,304 416,576
2016 results summary:
The decline in total operating income reflects the continued
planned reduction in the size of the loan book which fell 12% from
GBP331m to GBP289m although that was largely mitigated by a 9%
reduction in funding from GBP372m to GBP340m.
Administrative expenses increased by GBP1.8m mainly as a result
of professional fees associated with:
-- the ongoing legal claim against Grant Thornton LLP, the
Society's previous external auditors;
-- a proposed merger with another mutual society which, in the event, did not take place;
-- an exercise at the request of the Prudential Regulation
Authority ("PRA") to evaluate the capital required to re-enter the
residential mortgage market; and
-- the preparation of a Capital Conservation Plan to meet the
requirements of Capital Requirements Directive IV ("CRD IV")
article 142 as explained below.
Impairment losses were GBP3.4m, approximately half of which
relates to the EUR57m Spanish lifetime mortgage portfolio,
originated between 2008 and 2010, that was impacted by adverse
external factors including exchange rates, property valuations and
forecast house prices in Spain. Additional loan impairment
provisions were also required on the rest of the portfolio.
The Society's reserves reduced further in 2016 by GBP3.7m to
negative reserves of GBP9.2m.
The Society continues to have a strong liquidity position.
The 2016 accounts have been prepared on a going concern basis of
accounting and, as with the 2015 accounts, set out a "material
uncertainty" regarding the long-term future of the Society.
Strategic future and capital position
The Society met its Individual Capital Guidance ("ICG") in total
capital terms as at 31 December 2016. However, as a result of the
loss in the year the Society continues to have a Common Equity Tier
1 ("CET 1") regulatory capital shortfall against its Combined
Buffer requirement. As a result of this shortfall under CRD IV the
Society was required to submit a Capital Conservation Plan to the
PRA in October 2016 that considered potential measures to address
the shortfall.
The Board continues to discuss and consult with the PRA on the
strategic future and capital position of the Society. At the
request of the PRA, the Capital Conservation Plan is being revised
and updated to reflect the 2016 results and review further the
potential measures for addressing the shortfall to the CET1 capital
requirements. The outcome and timing of the regulatory process is
uncertain.
The Society is not currently engaged in merger discussions with
other mutual organisations.
The Board continues to explore the possibility of entering into
one or more transactions with non-mutual organisations. In the
event that an offer were received from a non-mutual organisation
for all or part of the Society's operations, the Board would
consider whether the transaction was in the interest of members as
a whole, mindful that, while retail savers and borrowers were
unlikely to be impacted greatly, there may be implications for the
holders of the Society's Profit Participating Deferred Shares
("PPDS"), PIBS and subordinated debt.
In addition, taking account of the Society's need to address its
CET1 capital shortfall, the Board is evaluating whether to make an
offer to buy back or convert the PIBS and other capital
instruments. Any offer, if made, would reflect the current
financial position of the Society and the material uncertainty
regarding its long-term prospects.
Regulatory compliance of second charge loan portfolios
During 2016 the Society initiated a project to ensure regulatory
compliance of two acquired second charge loan portfolios, NMB
Mortgage Acquisition Company Limited (in administration) ("NMB
MAC") and The Consumer Loans Company Limited ("CLC"), the
operational administration of which was brought in-house in
December 2015.
The Society incurred a GBP0.9m charge in 2016 for customer
redress in relation to this remediation (2015: GBP1.2m).
The remediation of these portfolios is ongoing and the
completion of this work in 2017 is an important step towards either
a disposal of those assets or a corporate transaction for the
Society.
Legal claim against Grant Thornton UK LLP
The Board has continued to take legal advice regarding the
Society's claim for damages against the previous external auditors,
Grant Thornton UK LLP. Although the outcome of litigation is
inherently uncertain, having taken account of this legal advice,
the Board is firmly of the opinion that it is in the best interests
of members to pursue this claim. If the matter progresses to trial,
the trial will not be before 2018.
Permanent Interest Bearing Share ("PIBS") coupon payments April
2017
As announced separately today, the Society will not be paying
the April 2017 coupon on the two tranches of PIBS in issue as, in
order to conserve capital, such a distribution is prohibited under
the CRD IV article 141.
Commenting on the results, David Harding, Chairman said:
"The ongoing run-off of the Society's assets, legacy loan
portfolio exposures and professional costs incurred in the
development of strategic options to secure the Society's future
continue to impact financial performance."
"The strategic future of the Society remains a focus for the
Board. There is an ongoing discussion with PRA regarding the
material uncertainty of the long-term prospects of the Society,
taking account of the current capital position and risks faced by
the business."
2016 Annual Report & Accounts
The accounts and the Pillar 3 disclosure for the 12 months
ending 31 December 2016 are available to view on the Society's
website:
http://manchesterbuildingsociety.co.uk/Main/FinancialInformation
The person responsible for arranging the release of this
announcement on behalf of Manchester
Building Society is Christopher Gee, Society Secretary.
Enquiries
Andy Donald - Maitland
020 7379 5151
adonald@maitland.co.uk
This information is provided by RNS
The company news service from the London Stock Exchange
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