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Chelsea BS hit by £41m fraud as finance chief quits

Chelsea Building society has posted a £26m loss for the first half after a £41m mortgage fraud and its finance director has quit following the departure of its chief executive earlier this month.

The mutual’s chairman Trevor Harrison and deputy chairman Jean Wood also retired from their positions earlier this summer.

Chief executive Richard Hornbrook announced his departure earlier in August after 28 years at the building society, while finance director Andrew Parsons gave notice of his resignation as the mutual’s interim results were published today.

Chelsea posted a £53m impairment on loans as a result of buy-to-let mortgage fraud which primarily took place on lending between 2006 and 2008, as well as to account for mortgages in arrears and the drop in property values.

The building society says it will not rule out a merger with another mutual although it says it is too early for new chief executive Stuart Bernau, who joined this month from Nationwide, to have reviewed the options for the firm.

Chelsea insists the departure of Hornbrook was unrelated to the losses, which compared to a profit of £23m during the first half of 2008.

In March, Chelsea posted £29.2m losses due mainly to £55m exposure to the Icelandic banking collapse, but the mutual says it has now exited its Kaupthing Singer & Friedlander position with a £9m gain compared to its provision.

Chelsea’s new lending was £242m while retail savings balances were up £498m to £10bn.

Bernau says: “The society has been through a difficult period and reporting a loss in the first half of the year is disappointing.

“However, the underlying performance is strong even though we have had to make provision for impairment and fraud losses.”

He says the society’s lending is now fully covered by retail deposits, reducing its reliance on wholesale funding.

Chelsea says the £41m figure is a provision for possible losses on fraud following a review of its loan book, but it hopes the actual losses will not be on this scale.

He says any loans which look like they may be fraudulent, will be investigated by a fraud team within the building society.

These might be buy-to-let loans falsely inflated through collusion among mortgage professionals or self-cert loans where the borrower’s income has been inflated.

The spokesman says: “Many of the fraudulent loans we have provisioned
against, mainly self-cert loans, are still paying, and we will make sure
they continue to pay out. Those that are not will be investigated and we
hope to recoup any losses.”


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There are 3 comments at the moment, we would love to hear your opinion too.

    Questions: And where may I ask was the FSA at this time? Answer: Working on RDR in order to hand over IFA distribution to the very banks they failed to regulate. Hey anyone could be forgiven for thinking the FSA had an agenda other than the welfare of the consumers! The IFA has only 3% FOS complaints compared with 59% banks. The only model that is broken is the regulator & their banking pals!

  2. Chelsea Building Soc
    Where was the FSA? They were spending their bonuses for failure again.

  3. Chelsea BS – Oh dear!
    With the new CEO coming from Nationwide BS, who could be in a position to take Chelsea BS over? The Nationwide BS is probably four times bigger than it’s next competitor, by now. Does this REALLY offer the consumer choice?

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