Tipton and Coseley Building Society raps failed banks levy
Mar 17 2009 by Anna Blackaby, Birmingham Post
The Tipton and Coseley Building Society saw profits halved last year thanks to an “unfair and disproportionate” levy which forces building societies to pay for the mistakes of failed banks.
The Tipton saw gross and after-tax profits of £1.01 million and £0.76 million respectively for the year ended December 2008, down from £2.14 million and £1.48 million the previous year.
The building society put the drop down mainly to its obligation to pay into the Financial Services Compensation Scheme, set up as a statutory fund of last resort for customers of banks who are unable to pay out claims against them. The Tipton handed over £0.6 million to the scheme in 2008.
Despite the lower profits, the building society registered an increase in year-end liquidity to 24.71 per cent thanks to record levels of retail savings coming into the organisation. The Tipton’s savers also increased their investments by a record £21.32 million during 2008.
Tipton and Coseley Building Society chief executive Chris Martin said he was pleased with the results but used the opportunity to hit out against the Financial Services Compensation Scheme.
He said: “Though gross profits are down to £1 million, due mainly to the unfair and disproportionate amount that we have had to pay into the Financial Services Compensation Scheme to bail out the failed banks, they are nevertheless strong and in stark contrast to the enormous losses declared by the banks.”
Mr Martin said building societies were paying around 15 per cent of their profits towards the scheme, whereas banks were typically paying between three and five per cent of their profits.
The disproportionate weighting towards building societies is largely due to the fact that the scheme looks at the amount of retail deposits when measuring the contribution a financial services organisation is required to pay.
Building societies, which have always raised the majority of their funds from traditional retail savings customers, tend to pay much more, relative to their total balance sheet, than banks that have relied on wholesale funds.
Mr Martin said the scheme needed to be reconsidered and was appealing to the Government, through the Building Societies Association, to introduce a more equitable scheme.
He said: “This scheme is a good thing, but the way this has been shared out is disproportionate.
“Building societies, none of whom have made any claims on government funds or this scheme, are having to foot a massive share of the bill.”
A Building Societies Association spokeswoman said Mr Martin’s views were echoed by the other building societies.
“Building societies are very angry at the disproportionate hit to bail out the various failed banks. We would like to see a change in how this scheme is funded to make it a more equitable one.”
The scheme is currently the subject of an early-day motion which is gaining considerable momentum in Parliament.
The Tipton has also significantly increased its mortgage loss provisions to ensure it can provide for the potential impact of the recession and the downturn in the housing market, which has also eaten into its profits.
But despite this Mr Martin said he felt the Tipton had delivered a strong set of results which were far better than many in the financial services sector.
