Norwich profits hurt as mutuals shunned

The Norwich & Peterborough building society yesterday said profits suffered last year as councils stung by the Icelandic banking crisis shunned mutuals.

Rating downgrades for many building societies prompted local authorities to make smaller deposits, forcing the N&P to raise funds in dearer retail markets.

Pre-tax profits at the Peterborough-based mutual fell from 5.9m to 1.3m last year and the group expects a "tough and demanding" 2010.

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The N&P was among nine building societies downgraded by ratings agency Moody's last April including Chelsea, Coventry, Newcastle, Nationwide, Principality, Skipton, West Bromwich and Yorkshire amid bad debt fears.

The group closed 10 of its 56 branches at the beginning of the month under a cost-cutting drive, with the loss of 27 jobs. The mutual now has 853 employees.

Profits at the UK's 10th biggest building society were also squeezed by its decision to raise an extra 325m in retail deposits to buffer against further potential shocks early last year.

Meanwhile, the Bank of England's quantitative easing programme had the effect of reducing returns on assets such as Government bonds held by the group. This sent the lender's interest income – the difference between the money made on lending and deposit taking – down 38 per cent to 32.2m.

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Retail deposits held by N&P rose to 3.54bn from 3.36bn over the year, although the value of the group's mortgage book slid from 3.52bn to 3.22bn as it opted to conserve funds.

But the mutual benefited from a more conservative lending policy with serious arrears less than half the industry average. Bad debt charges fell by more than half to 3.5m over the year.

Chief executive Matthew Bullock said 2010 would be a year of "rebuilding" after "painful but necessary action" to protect profits last year.

He said: "The growth of banking and longer term savings will reflect consumers' caution and preference to repay their debts, before starting to invest for the longer term.

"Mortgage lending is unlikely to recover in any material sense before the second half of 2010."

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