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Societies could opt for debt swap to boost cash

A number of building societies have not ruled out following West Bromwich in using new FSA regulations to improve their capital adequacy.

Last week, West Brom revealed it was to convert £182.5m of subordinated debt into profit participating deferred shares, which the FSA deems to be tier 1 capital. This meant that West Brom’s tier 1 ratio rose from 6.8 per cent to 11.6 per cent.

A spokesman for Chelsea, whose tier 1 capital ratio is 9 per cent, says: “Everyone is looking at this scheme, but right now we are adequately capitalised.”

At Stroud & Swindon which has a tier 1 ratio of 9.6 per cent, sales and marketing director Linda Will admits the mutual model is limited in its ability to raise capital. She says: “We do not have any current plans but everyone will be looking terribly carefully at this. Right now, there is a lot of nebulous talk over PPDS, they do not seem like a terribly attractive investment.”

Skipton, which has 21 subsidiaries and a tier 1 ratio of 9.5 per cent, says it has no capital concerns and does not plan to restructure its debt immediately. A spokeswoman says: “We would have to understand all the details of the instrument before considering anything.”

Principality has also not ruled out using the PPDS scheme.


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