Looks like West Brom Building Society is going UNDER

opinions4u

Thanks Brucey. The old memory cells aren't what they used to be!!

John_Brown_4

opinions4u wrote: »

So the business model is flawed

Nick Lock, manager of the FSA’s retail firms division, warned that building societies had been operating on “unsustainable margins” and that lending in the sector had been “fundamentally mis-priced”. He added that the FSA had warned societies about this “over and over again” but “clearly not everyone had been taking note”.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6349953.ece

The_Great_Mogul

Great! I've got 40,000 with them, in one of their e-bonds (issue 23). Received my letter/certificate last week, can i get this cancelled? Should i get this cancelled? I had money with Icesave when it went belly up, don't want to go through that again! Someone here said that there is a two week cooling off period, is that right?:mad:

Steve_xx

The real problem here is that the UK government is trying to buck the markets by forcing base rates far too low. Some banks are now effectively lending money to borrowers at zero or almost zero interest. That cannot be sustained and the government was very wrong to force interest rates so low, in the knowledge that many borrowers were on a base rate minus interest rate, meaning they pay nothing for the cash they've borrowed. This model is flawed totally.It means that the bank has to punish its savers while it gives a free lunch to is borrowers. This is simply not on and it is not a responsible way for a government to run an economy, especially when that government has already had to commit as yet unlimited amounts of taxpayers cash to shore up the banks.

The results of this flawed model are already in evidence, ie the gap between what savers earn in interest and the average mortgage interest rate for new borrowers is widening and I would expect that to continue for some while as the banks rebuild their balance sheets.

withnell

John_Brown wrote: »

Nick Lock, manager of the FSA’s retail firms division, warned that building societies had been operating on “unsustainable margins” and that lending in the sector had been “fundamentally mis-priced”. He added that the FSA had warned societies about this “over and over again” but “clearly not everyone had been taking note”.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6349953.ece

Great, it's like the UN weapons inspectors - write a nasty letter, and expect that magically everything will change

No wonder we're in the situation we are now with regulation like that!

withnell

apt wrote: »

The trouble with the let's pile in we're covered upto £50,000 anyway attitude is that if the institution goes belly-up other savers and the taxpayers more generally will have to pay the bill. And even if you're selfish enough to want other people to pay for your unnecessarily risky savings you should think that although your capital is safe the interest rate is not if the FSCS has to step in.

If everyone piles in 50k, then it'll probably be enough to prop the society up, as the only reason they have problems is finding wholesale funding - so everyone take advantage of a decent rate, and help a British institution!

Steve_xx

I think it unlikely that it will be allowed to collapse. It's depositors and mortgage book, stripped of debt, would be passed to another society and therefore it's unlikely that the bonds would be affected.

The previous posters view is interesting. However, if we all pile 50k in at 4.27 then realistically the West Brom would need to be loaning that out at around 4.77%. I don't know whether thats attractive given todays low rates?

withnell

Steve_xx wrote: »

if we all pile 50k in at 4.27 then realistically the West Brom would need to be loaning that out at around 4.77%. I don't know whether thats attractive given todays low rates?

But that's not the situation - the funds are required to balance the books.

The mortgages are already sold, and as existing wholesale funding deposits come to an end they need the newly deposited cash to pay these back

agsnu

withnell wrote: »

But that's not the situation - the funds are required to balance the books.

The mortgages are already sold, and as existing wholesale funding deposits come to an end they need the newly deposited cash to pay these back

If institutions are in a situation where they need to offer above-average deposit rates to draw in retail funding at a loss to fill the holes on their balance sheet from disappearing wholesale funding, typically they're in a bad place. Building societies tend not to have a strong ability to absorb losses, since their annual profits tend to be fairly small in comparison to their size of their asset base (west brom made a profit of £23m in 2008, on assets of £9.6bn - interest margin 0.72% giving net interest receivable of £72.6m... So, uh, if their interest margin was to deteriorate by more than ~0.2% they'd wipe our their profits)

hotkee

A bit of humour -

A week ago I applied for a second ebond with West Brom bs - it would have taken me over the safety limit - I knew that before I applied.
Then over the weekend, I hear more noises from newspapers so started worrying.

I sent West Brom an email to ask the new application not be processed.

The application was sent on Saturday - or so I thought. I had given it to my bro to put in the postbox but on Sunday I found he had not done that - having missed the post deadline he had simply not posted it.

On the Monday I get a call back from West Brom. And I didn't have the guts to admit that the second application was not actually in the post. I mentioned the weekend newspaper stories to the lady on the phone and she was saying that West Brom have withdrawn from the riskier assets hence these saving products.

On the Wednesday I sent an application to West Brom for a new second bond which takes my total to the 50k limit. :-)

Got my email confirmation on Thursday and a certificate on Saturday.

So as long as people are careful - I think these higher rates are to the savers advantage for now. The bigger institutions are obviously not eager to offer the higher rates.