October coupons expected to be cancelled for Manchester Building Society noteholders

 
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Accounting rules for financial hedge products changed in 2013 (Source: Getty)

Manchester Building Society revealed more bad news today as it updated note-holders that it did not think they would receive scheduled interest payments.

The society said that it did not expect to have sufficient regulatory capital (Common Equity Tier 1) to pay coupons to holders of permanent interest bearing shares (PIBS), which were supposed to be paid in October this year it said in a statement to the market this morning.

The long-term future of the building society, which was formed in 1922, was thrown into doubt after it warned of "material uncertainty" in April this year. The announcement led to the price of its PIBS nose-diving – a clear indication from the market that full repayment of the notes was no longer expected.


The price of Manchester Building Society PIBs reacted to the April 2016 announcement Source: Hargreaves Lansdown​

"The directors expect that the accounts will show that there will be a loss for the six months," the statement from MBS said.

"This is largely due to professional costs incurred in exploring options to secure the future of the society given its Common Equity Tier 1 ("CET1") regulatory capital position and the ongoing run-off of the balance sheet.

"In addition, the society has continued to incur costs in pursuing its claim against Grant Thornton LLP, the society's previous external auditors," it said.

Read more: The Manchester Building Society sues Grant Thornton

Problems for the lender started in 2013 when accounting standards required a change in the valuation of some of its interest rate hedging products, incurring significant losses as a result.

The losses incurred impacted the balance sheet and prevented the mutual from issuing new loans, strangling its ability to continue trading.

Savers with more than £75,000 in their accounts were written to by the society in 2015, advising them that balances over £75,000 would not be guaranteed under government schemes from 2016 onwards.

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