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Chelsea and Yorks £40m losses as merger nears

Yorkshire Building Society and Chelsea Building Society, which are in the process of merging, have posted combined losses of nearly £40m.
Yorkshire made a loss of £12.5m in 2009 compared with losses of £22m for 2008 while Chelsea revealed a loss of £27.1m, compared with a loss of £39m in 2008.

Chelsea has made a charge of £21m to reflect arrears’ levels in its residential mortgage book.

In its last half-year results, Chelsea made a £41m charge for mortgage fraud on its buy-to-let book. This charge has now been reduced to £32.6m due to the investigation uncovering fewer fraudulent cases than originally anticipated and to improvements in the housing market meaning losses on the underlying properties will be minimised.

In 2008, Chelsea was badly hit by exposure to the Icelandic banks and set aside a provision of £44m against an exposure of £55m. Following the sale of its investments in Kaupthing Singer & Friedlander and Landsbanki, in its 2009 results, it has reported an improvement on thi position of £15.6m.

Yorkshire and Chelsea agreed a merger in December 2009 and it is due to take effect on April 1, subject to FSA approval.

Yorkshire has hit out at the unfair treatment of building societies relative to the banking sector under the Financial Services Compensation Scheme, which it says does not allocate the cost burden fairly according to risk. It says there has been a “slow pace of progress” reviewing the FSCS model.

Yorkshire highlights the need for a new type of funding instrument – called mutual ordinary deferred shares or Mods – which would help building societies to access private sector funding.

It says that the creation of Mods – something the mutual sector is currently working on with the regulator – would help building societies to compete with banks.

Yorkshire’s overall mortgage assets fell by £1.3bn and gross mortgage lending was £900m which the lender says reflects low demand and a conservative approach to lending in the current climate.

Yorkshire says its member savings balances funded 92 per cent of the group’s total mortgage assets. It aims to double its lending next year.

Chief executive Iain Cornish says: “The Yorkshire has demonstrated continued resilience throughout 2009 and has maintained a strong underlying performance. We are seeing green shoots in the housing and mortgage markets and we are very optimistic about the future prospects of the group and plan to prudently increase our lending in core prime residential mortgages.

“Our agenda, through the merger with Chelsea Building Society, is to provide a compelling alternative to banks and a real choice to consumers across the UK”.

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