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Wan LixinOpinion deputy editor of Shanghai Daily
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Post-tax profit shares deal saves firm
By Robert Barr |
June 13, 2009, Saturday
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Print Edition
Print Edition
BRITAIN'S West Bromwich Building Society, which was reportedly on the verge of an arranged takeover, said yesterday that it has reached an innovative agreement with creditors to boost its capital ratios and keep it independent.
Using a new financial instrument sanctioned by regulators, West Bromwich said holders of its subordinated debt totaling 182.5 million pounds (US$302.3 million) agreed to convert their assets to profit-participating deferred shares.
The bank said this would strengthen its tier 1 capital ratio, a key measure of banks' viability, from 6.8 percent to 11.6 percent. Holders of the new shares will be eligible for dividends of as much as 25 percent of future consolidated post-tax profits.
The Financial Services Authority said the new type of share was devised in cooperation with the Treasury to allow the building society to better deal with losses. Investors in these shares are not covered by government guarantees on ordinary deposits.
Takeover plan
"Prior to this the only source of core tier 1 available to building societies under the FSA's rules was reserves grown from internally generated profits," the regulator said. "Now building societies, like banks, have the option of raising core tier 1 capital from external sources."
The British Broadcasting Corp had reported on Thursday that the FSA was working to arrange a takeover of West Bromwich, as it had done in March when the Nationwide Building Society took over key assets of Scotland's Dunfermline Building Society.
West Bromwich employs 850 people in 46 branches in west-central England.
Using a new financial instrument sanctioned by regulators, West Bromwich said holders of its subordinated debt totaling 182.5 million pounds (US$302.3 million) agreed to convert their assets to profit-participating deferred shares.
The bank said this would strengthen its tier 1 capital ratio, a key measure of banks' viability, from 6.8 percent to 11.6 percent. Holders of the new shares will be eligible for dividends of as much as 25 percent of future consolidated post-tax profits.
The Financial Services Authority said the new type of share was devised in cooperation with the Treasury to allow the building society to better deal with losses. Investors in these shares are not covered by government guarantees on ordinary deposits.
Takeover plan
"Prior to this the only source of core tier 1 available to building societies under the FSA's rules was reserves grown from internally generated profits," the regulator said. "Now building societies, like banks, have the option of raising core tier 1 capital from external sources."
The British Broadcasting Corp had reported on Thursday that the FSA was working to arrange a takeover of West Bromwich, as it had done in March when the Nationwide Building Society took over key assets of Scotland's Dunfermline Building Society.
West Bromwich employs 850 people in 46 branches in west-central England.
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