The FSA and the Bank of England have shut down a small Havant-based bank with retail deposits of £7.4m, triggering compensation payouts from the Financial Services Compensation Scheme.
Southsea Mortgage and Investment Company has ceased trading today following a decision by the FSA to initiate the special resolution regime, which allows the regulator to wind down failing banks and building societies.
The Bank then applied to court to place Southsea into insolvency, with BDO appointed as bank liquidator.
Southsea is a small bank with just over 250 depositors. At failure, the firm had retail deposits of £7.4m.
The Bank says the failure of Southsea follows a deterioration in the bank’s financial position, as a result of management decisions and the firm’s specific business model.
Money Marketing understands the company was offering loans to property development companies, who then began to default on their loans in 2008.
Southsea planned to develop the land acquired by developers itself to pay depositors and creditors, but found itself unable to do so as a result of the downturn in the property market during the financial crisis. This then triggered the FSA and Bank’s involvement and the process of winding down the company.
Customers of Southsea will be entitled to compensation of up to £85,000 each. They will not need to contact to the FSCS to apply for compensation as the FSCS will send their compensation automatically.
There are 14 customers who had savings with Southsea of over £85,000. The FSCS says it will pursue recoveries through the insolvency process, to try and recoup the remaining balance for savers.
The Bank says: “In making this decision, the FSA has determined that the conditions for initiating the SRR under the Banking Act 2009 were met; that Southsea no longer satisfied the FSA’s threshold conditions for operating as a deposit-taker, and that it was not reasonably likely that action would be taken by, or in respect of, Southsea that would enable it once again to satisfy the threshold conditions.”
The FSCS expects to pay compensation to eligible customers within seven days in most cases. It aims to pay out for more complex cases within 20 working days.
Southsea customers with an Isa account will shortly receive a certificate from the insolvency practitioner showing the balance they had saved in their Isa on June 16. This will enable them to open a new Isa with another Isa provider.
The FSCS says: “Anyone with mortgages or loans from Southsea Mortgage and Investment Company Ltd should continue to make repayments and service their debts in the normal way.
“Customers of the firm will be contacted in due course and advised how loan and mortgage repayments will be handled in future. The FSCS pays compensation on a gross basis and does not deduct loans or other debts from compensation payments.”