West Bromwich Building Society Tracker Margins Legal Action

Reply to the comment left by "Annette Stone" at "05/12/2013 - 21:20":

Great plan Annette. I'll take on Warwickshire but my experience though with local rags is that general national issues don't cut much ice. They want a local angle. Like a named local individual who will be hurting to the tune of £xxx per month thanks to the actions of the WB. I don't mind being that individual here. Throw in some melodrama about tenants possibly needing to be evicted as a result if other lenders follow suit.? Lay it on with a trowel. What the local papers want is a story. I'm talking about using this stuff in the e mail to catch the eye, not changing the press release.

Reply to the comment left by "All BankersAreBarstewards Smith" at "05/12/2013 - 21:35":

The savers won't be told anything about this and they wouldn't see an increase in savings rates even if we paid the extra without complaining.

This is what the press needs to do a Paxman on the "head of miss information and propaganda" about:

Forget what 1.9% extra would dilute down to over the whole savings book. Forget that all the lending with rates well in excess of BoE gets skimmed off to well below BoE savings rates.

I'd like to know about West Bromwich Profit Participating Deferred Shares and who might be after their dividends.

And anyone spotted the Half Year Results came out on 28/11. Do I see a Monty Python size foot heading towards someones mouth?
Or is just a tiny 0.1% foot?

WEST BROMWICH BUILDING SOCIETY
Announcement of half-year results for the six months
ended 30 September 2013

The West Brom today announces its half-year results, reporting continued progress with its Back to Basics strategy and a further reduction in losses.

Key highlights:

- The Core Tier 1 capital ratio strengthened from 14.1% at 31 March 2013 to 14.5%.
- Operating profit of £6.0m for the six months to 30 September 2013 (30 September 2012: loss of £0.5m).
- Satisfactory Group performance, with pre-tax losses of £5.2m (30 September 2012: £6.7m).
- New residential mortgage product range introduced, receiving circa £150m of applications in the period.
- Attracted some 12,000 new savers, contributing to retail savings inflows of £0.8bn.
- Expanded the funding base through the successful completion of a second residential mortgage backed securitisation.
- Maintained a low reliance on the wholesale markets, with a wholesale funding ratio of 18.7% at 30 September 2013 (31 March 2013: 16.7%).
- Residential mortgages covered 1.11 times by retail deposits.

Jonathan Westhoff, Chief Executive, commented:

The West Brom continues to make satisfactory progress, delivering a further improvement in financial performance and seeing profits return at the operating level.

This performance is encouraging, especially in light of the continued pressure on interest margins from a record low Bank Rate, while our capital position confirms the Society's underlying financial strength.

We have upheld our commitment to members by offering a competitive range of savings, investment and mortgage products. There is an air of confidence gradually returning to the residential property market and this is reflected in increased mortgage lending within the building society sector.

For our part, the West Brom has greatly improved its range of residential mortgages, offering competitive products to new and existing borrowers through branch, direct and intermediary channels.

We also recognise the importance of creating an infrastructure to facilitate business growth. Our recently modernised branch network gives the Society a genuine stand-out presence on local high streets and the service provided through these branches helps members access the support they need to manage their money effectively.

In addition to this we have also secured approval for our plans to construct new head office premises at Providence Place in West Bromwich town centre and appointed the main contractor for the project.

END

ENQUIRIES:

The West Brom 0870 220 7785
Jonathan Westhoff - Chief Executive
Mark Gibbard - Group Finance Director

West Bromwich Building Society
Condensed consolidated
half-yearly financial information
30 September 2013

CHIEF EXECUTIVE'S BUSINESS REVIEW

Performance
The West Brom once again delivered an improvement in financial performance and upheld its commitment to members by offering a competitive range of savings, investment and mortgage products, coupled with excellent customer service.

In the six months to 30 September 2013, the Society reported an operating profit of £6.0m (30 September 2012: loss of £0.5m) and reduced its loss before tax by 22% to £5.2m (30 September 2012: £6.7m). The Core Tier 1 capital ratio further increased to 14.5% (31 March 2013: 14.1%) confirming the Society's underlying financial strength and the value derived from its balance sheet de-risking programme.

The net interest margin improved to 0.67% (30 September 2012: 0.42%). Although total funding costs remained significantly above their long-run norm, relative to Bank Rate, there was some improvement as a consequence of the slow down in competition for retail funds and the Society's successful completion of a second residential mortgage backed securitisation programme. Encouragingly, there are also signs of increased residential mortgage lending activity and an upward trend in UK house prices. The Society has benefited from these house price movements through its subsidiary, West Bromwich Homes Limited, a residential investment company, which recorded a £2.0m revaluation gain on its property portfolio during the period.

Such positive market sentiment has not translated to the commercial property sector which has experienced another challenging six months. Commercial impairment charges for the half year to 30 September 2013 were £10.0m (30 September 2012: £2.8m), partially offset by £3.7m fair value gains on financial instruments held to economically hedge the impaired loans. The Society remains steadfast in its efforts to reduce the commercial loan book, with balances down 7% to £1.0bn (31 March 2013: £1.1bn). Funds set aside for potential losses on commercial mortgages equate to 7.3% of the current loan book (31 March 2013: 5.7%), with appropriate provisions made wherever factors indicating impairment are identified.

The number of residential mortgages in arrears by more than three months at 30 September 2013 stabilised at 1.92% (31 March 2013: 1.92%). This represents a very encouraging performance given the high levels of unemployment, a contracting mortgage book and a forbearance strategy aligned to the principles of responsible lending. The Society actively seeks to support those borrowers experiencing genuine financial hardship, enabling them to remain in their homes where this is believed to be in their best interests (i.e. where the loss to the customer is not expected to increase over time). Strict credit criteria are in place for all new lending and the quality of the existing prime residential and buy-to-let portfolios remains strong.

Management expenses for the six months to 30 September 2013 were just 1% higher than the first half of 2012/13. Notwithstanding a focus on cost efficiency, the Society recognises the importance of creating an infrastructure to facilitate growth. To this end, we have begun an investment in larger, modern head office premises, due for completion in Spring 2015, and have developed systems which enhance further our mortgage lending capability. During the period, the Society repositioned itself in the mortgage market, expanding the range of market leading products available to new and existing borrowers through branch, direct and intermediary channels. This essential investment in the future, together with additional costs of regulation, and a contracting asset base, contributed to an increased management expenses ratio of 0.75%, compared with 0.66% for the year ended 31 March 2013.

Funding
As a traditional building society, the West Brom is primarily funded by retail deposits. The intense competition for retail savings abated during the period, as lenders were able to access lower cost funding through Government supported schemes and other cheaper sources of wholesale funding. The Society has continued to offer competitive rates to savers and, at 30 September 2013, 81.3% of total shares and borrowings were in the form of retail savings products.

While the wholesale markets are a secondary source of funding compared with retail deposits, some diversification in the funding base is beneficial from a risk management perspective. In May 2013, the Society was successful in raising £380m of cost-effective, long-term secured wholesale funding via a residential mortgage backed securitisation transaction.

The improvement in high funding costs resulted in a net interest margin of 0.67%, up from 0.42% for the six months ended 30 September 2012. Interest receivable, however, remains constrained by the low returns on high quality treasury assets, held for liquidity purposes, and the substantial proportion of mortgage loans linked to Bank Rate.

Liquidity
The Society maintains its prudent approach to liquidity management, holding only securities rated single A or better in its treasury asset portfolio. The West Brom has no direct exposure to any Eurozone sovereign, investing solely in UK and supranational sovereign securities. There were no impairment charges against any treasury investment assets during the period.

The Society's liquidity ratio increased modestly to 20.2% at 30 September 2013 (31 March 2013: 19.8%), remaining comfortably in excess of internal and regulatory limits.

The West Brom has established a robust capital position which compares favourably with peers in the UK bank and building society sectors. The Society's Core Tier 1 ratio, a key measure of financial resilience, improved again to 14.5% (31 March 2013: 14.1%) as a result of the planned contraction in risk weighted assets, down 4% in the last six months to £2.7bn.

Principal risks and uncertainties
Effective management of risks and opportunities is essential to achieving the Society's strategic objectives. The Society aims to manage effectively all of the risks that arise from its activities and believes that its approach to risk management reflects an understanding of actual and potential risk exposures, the quantification of the impact of such exposures and the development and implementation of appropriate controls to manage these exposures within the Society's agreed risk appetite.

The Society's activities are governed by its constitution, principles and values. The Directors have also agreed a set of statements which describe the Board's risk appetite in terms of a number of key risk categories: business, credit, capital, liquidity, market, operational, retail conduct and pension liability. These Risk Appetite Statements drive corporate planning activity, including capital and liquidity planning, as well as providing the basis for key risk measures.

The principal risks and uncertainties which could impact the Society's long-term performance remain those outlined on pages 17 to 20 of the Annual Report and Accounts for the year ended 31 March 2013. There have been no significant changes in the Society's approach to risk management in the six months ended 30 September 2013.

Outlook
The UK has experienced three successive quarters of growth and the housing market is gathering momentum. The UK recovery is, however, still in its early stages with high levels of unemployment, suppressed wages and challenges in the Eurozone and beyond giving uncertainty as to whether economic growth is sustainable. Market commentators have expressed concern over the continuation of recent house price rises, particularly in and around London. The West Brom will continue with its responsible lending policies and prudent approach to capital and liquidity management, such that it has the financial resources to withstand any reversal in the UK domestic recovery. While the underlying credit quality of the Society's residential mortgages is strong, the commercial portfolio is more vulnerable to changing economic conditions and further provisioning for potential losses is likely.

The downward trend in retail funding costs has contributed to an improvement in net interest margin, although interest receipts continue to be constrained by the Society's exposure to the effects of the low interest rate environment and escalating competition in the mortgage markets. Notwithstanding the Monetary Policy Committee's forward guidance, intended to provide some clarity on the trajectory of interest rates, market opinion on the quantum and timing of a rise in Bank Rate varies widely. To maintain support for its saving members, through this extended market disruption, the Group has sought to mitigate the impact of adverse market conditions by increasing the interest income from its non-consumer buy-to-let portfolio with effect from 1 December 2013.

A key development in the regulatory arena has been the separation, in April 2013, of the Financial Services Authority into prudential and conduct counterparts - the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) respectively. The PRA has an objective to promote the safety and soundness of firms while the FCA seeks to protect and enhance confidence in the UK financial system, making markets work well so that consumers get a fair deal.

The Capital Requirements Directive (CRD) IV package has now been finalised and comes into force on 1 January 2014. CRD IV transposes the new global standards on bank capital (commonly known as the Basel III agreement) into the EU legal framework. Another significant regulatory reform is the Mortgage Market Review (MMR) which aims to deliver a mortgage market that works better for consumers and is sustainable for all participants. The Society is constantly monitoring regulatory developments and is therefore well placed to respond appropriately to regulatory change.

The financial services industry faces increased regulatory and public scrutiny in the wake of PPI mis-selling and, more recently, LIBOR fixing scandals. As a traditional, regional building society, the West Brom is run for the benefit of its members and is committed to acting with integrity in all of its dealings with them. We are confident in our ability to safeguard customer deposits and clear in our priorities to provide quality mortgage, savings and investment products and exceptional customer service.

Jonathan Westhoff
Chief Executive

Forward looking statements
Certain statements in this half-year report are forward looking. Although the West Brom believes that the expectations reflected in these forward looking statements are reasonable, we can give no assurance that these expectations will prove to be an accurate reflection of actual results. By their nature, all forward looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the West Brom. As a result, the West Brom's actual future financial condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward looking statements. Due to such risks and uncertainties the West Brom cautions readers not to place undue reliance on such forward looking statements. We undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

This information is provided by RNS
The company news service from the London Stock Exchange

END

Reply to the comment left by "Colin Childs" at "05/12/2013 - 23:12":

Financial tables and related notes were deleted as didn't transpose when copied.

Reply to the comment left by "All BankersAreBarstewards Smith" at "05/12/2013 - 21:35":

I became a WB saver two weeks ago but have had nothing relating to its efforts to increase savings rates. Its rates don't seem to be any better or worse than its competitors, so I'm not clear which group of its savers is suffering because of us BTL landlords no longer paying £8,000 over the odds for our BTL mortgages (Andrew Jones's figure, not mine).

In terms of the eventual U-turn, I am certain that there will be at least one sacrificial lamb offered up to the financial press for the unfortunate course of action taken by the society. My money is on the Group Risk Director, and possibly the Customer Relations Manager and Director of Mortgage Operations for good measure too.

Reply to the comment left by "Andy Bell" at "05/12/2013 - 22:47":

Very interesting Andy.

There's some illuminating articles from June 2009 in The Guardian and The Telegraph about the West Brom's lenders agreeing to convert £182 million of their loans to the society into new financial instruments known as Profit Participating Deferred Shares.

Profit Participating Deferred Shares (PPDS) are capital instruments that building societies can issue to strengthen their balance sheets. PPDS were created to help building societies that were suffering from a lack of access to capital as they faced losses amid plunging property values. Unlike banks, building societies cannot raise new equity to offset losses.

Like bonds, the instruments pay interest, but like a stock, their value fluctuates along with the company's profitability.

By issuing PPDS, building societies like the West Brom can convert subordinated debt, which is classified as tier-two capital, into tier-one capital (core equity). Regulators require banks and building societies to bolster their tier-one capital to protect them from further losses.

If the building society slips into the red, the PPDS do not pay dividends and their values are written down.

http://www.theguardian.com/business/2009/jun/12/west-bromwich-saved-buiding-society

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5512922/West-Bromwich-rescue-deal-gives-bondholders-a-share-of-the-profits.html

I would urge everyone reading this forum to read these articles. It would certainly explain why the FCA (formerly the FSA) and HM Treasury appears so reluctant to assist us. These Profit Participating Deferred Shares were the brainchild of the FSA working with HM Treasury.

http://www.fsa.gov.uk/pages/Library/Communication/Statements/2009/profit.shtml

The plot sickens!

Reply to the comment left by "Paul Eastabrook" at "05/12/2013 - 23:44":

Sorry Andrew Jones, nothing personal. I hadn't realised until a few minutes ago that you were busy enjoying looking at my linkedin profile. Anyway, I'm sure WB will find something for you elsewhere when this is all over. And thanks also for the heads-up on the THREE BTL mortgage criterion. Your colleagues hadn't mentioned that stipulation to me before.

Reply to the comment left by "Colin Childs" at "05/12/2013 - 23:19":

WEST BROMWICH BUILDING SOCIETY
Announcement of half-year results for the six months
ended 30 September 2013

[Below is an extract from the notes for the West Brom's half yearly results ended 30 September 2012 revealing some rather interesting information for those with a far better grasp of finance than I have.]

"Included within loans and advances to customers are £199.9m (30 September 2012: £372.3m) of commercial mortgage balances and £1,581.9m (30 September 2012: £1,276.4m) of residential mortgage balances that the Group has sold to bankruptcy remote special purpose entities (SPEs). The SPEs have been funded by issuing mortgage backed securities (MBSs) of which loan notes totalling £1,113.9m (30 September 2012: £1,268.6m) are held by the Group.

The Group has made subordinated loans to the SPEs to provide some level of credit enhancement to the MBSs. In future periods the Group will earn interest income on the subordinated loans and fees for managing the loans. The Group will earn deferred consideration once the cash flows generated by the SPEs have been used to pay interest and capital to the holders of the MBSs. Since the Group maintains substantially all of the risks (key risk being an exposure to credit risk through the subordinated loan agreements) and rewards emanating from the mortgages, they have been retained on the Group's statement of financial position in accordance with IAS 39."

Reply to the comment left by "Richard Kent " at "05/12/2013 - 20:51":

I do hope I haven't jumped the gun here, you will note that I used the word "probably" and that was intentional. West Brom have reversed the decision for one borrower on the basis of a consumer plea. Justin has all the details and is investigating. We have all instructed him to get the decision reversed and if he can organise that for some borrowers before the Court case it is his duty to do so. Therefore, he has written to West Brom on behalf of those borrowers which match the criteria of the person for whom West Brom have already back-tracked. We should know the outcome of that next week. These people are, of course, still paid up members of the Class Action Campaign but will not need to be listed in the representative action when we get to Court if they are no longer affected by the rate rise.
.

Reply to the comment left by "All BankersAreBarstewards Smith" at "05/12/2013 - 21:32":

I like your suggestion, for example ....

"Mr X from Stafford said, West Brom said "my mortgage payments would only change when the bank base rate moved, that's why I chose the West Brom tracker mortgage product. My mortgage is for £187,000 and even though the bank base rate has not changed for nearly 5 years, West Brom are now charging me an extra £296 per month. How can that possibly be fair? They are more than doubling my mortgage payments but have no right to because the bank base rate has not changed. They are saying it is due to market conditions but I've had legal advice to say that West Brom have no rights to increase my mortgage on this basis because it is a tracker mortgage. If I had taken a standard variable rate mortgage that would be different and that's exactly why I chose a tracker mortgage in the first place."
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