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Rescue details

The new regulations allow mutual investors to convert tier-2 subordinated debt into “profit-participating deferred shares”, which will award them with 25 per cent of all future profits. The FSA has deemed these PPDS shares as core tier-1 capital.

The shares are similar to the permanent interest-bearing shares but, instead of paying a fixed coupon, the new PPDS may pay up to a fixed percentage of profits as a dividend. They are loss-bearing shares, so 25 per cent of any West Brom losses are firstly set off against the balance on the “PPDS reserve” account before the share value is reduced.

If the share value is reduced, it will then be rebuilt in time using the PPDS’ future 25 per cent share of profits. They will not offer any dividends until the original amount has been finally rebuilt.

The FSA says: “Now building societies, like banks, have the option of raising core tier-1 capital from external sources.”

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