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Fitch downgrades West Brom

Fitch Ratings has downgraded West Bromwich Building Society’s individual rating and placed it on negative ratings watch.

At the same time, the agency has downgraded the society’s senior and subordinated debt and also its permanent interest bearing shares. The subordinated debt rating will be withdrawn upon legal completion of the debt exchange announced by the mutual last week.

Fitch says the rating action follows West Bromwich’s announcement of a £48.8m loss for the financial year. In particular Fitch says it downgraded the society thanks to its £65.2m bad debt write down, up from from £6.4m at the end of 2007.

Fitch says it had expected some pressure on asset quality and profitability, but the scale of the deterioration reported by West Bromwich was more than its prior expectation. Fitch considers the society’s mortgage portfolio to be higher risk thanks to its buy-to-let, acquired and commercial mortgage books.

The ratings agency expects to resolve the negative ratings watch following completion of a review of West Bromwich’s loan books together with an assessment of its ability to make enough money to absorb further losses. It says the review will focus on the society’s commercial book.

However, it does admit that whilst no fresh funds are being injected into the society, West Bromwich’s financial flexibility will be moderately improved by the revolutionary debt exchange announced last week, which will see the society convert £182.5m of subordinated debt into new preferential shares.

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