The embattled Manchester Building Society has confirmed that it will not pay the interest due on its permanent interest-bearing shares or Pibs next month.
Pibs are often held by private investors attracted by high rates of interest. Manchester’s Pibs paid 8pc or 6.75pc.
In an announcement to the stock market yesterday it confirmed that investors in its two tranches of Pibs would not receive their interest. It added that the following payments, due in April next year, were also unlikely to be met and that there was uncertainty over the interest due thereafter.
The Pibs are not “cumulative”, which means that, even if regular payments resume at a later stage, investors will never receive the missed instalments. Manchester said it had a “regulatory capital shortfall”.
The announcement said: “Manchester Building Society Group confirms that, in line with expectations, the society will not be paying the October 2016 coupon on the two tranches of Pibs in issue. In order to conserve capital, a distribution to Pibs holders is prohibited under the capital requirements.
“The directors currently expect that the April 2017 Pibs coupons [interest] will not be paid. There is also uncertainty over the society’s ability to make Pibs coupon payments due after April 2017 given the risks facing the business.”
It said it was required to submit a capital conservation plan to the regulator “setting out proposed measures to improve the regulatory capital position”. The mutual added: “The board expects to discuss and consult on this plan with [the regulator]. The outcome and timing of the regulatory process is uncertain.”
Manchester also announced its results for the six months to the end of June, during which it made a loss of £1.4m, almost all of which arose from impairment losses. Half of these losses related to Spanish lifetime mortgages, with the remainder on “other loan assets”. Revenue was £4.5m, against £5.9m in the same period last year.
The society said: “The decline in total operating income reflected the continued planned reduction in the size of the loan book. The continued run-off of the society’s assets, certain specific legacy loan exposures and costs incurred in the development of strategic options with a view to securing the society’s future have impacted financial performance and profitability in the first half.
“The board is continuing to explore a number of options which individually or in combination aim to secure the future of the society, enable it to continue to meet capital requirements and improve the quality of its regulatory capital.”