Recession sees Yorkshire Building Society suffer first ever annual loss

The mutual, which is merging with Chelsea Building Society to create the UK's second-biggest building society, fell into a 12.5m annual loss compared with an 8.3m profit the year before.

YBS said bad debt provisions, due to some borrowers struggling to pay their mortgages, hit 58.5m in 2009 compared to 24m in 2008 but it said the increase was "an appropriate step taken in response to the harsh economic conditions".

Chief executive Iain Cornish insisted that the reason YBS made a loss was because the society had protected its members from the effects of the recession. He said that the mutual had saved its members 85m in additional interest payments in 2009 by not passing on the full impact of the base rate cuts.

He added its capital position makes it among the UK's strongest financial institutions and it maintains a high level of quality liquid assets.

"That's not to say we haven't been immune from the recession but we are in a strong position to be able to deal with it," he said.

YBS said it made an operating profit of 7.7m, but this was a fraction of the 53m operating profit achieved a year earlier.

The society made a 10m pre-tax profit in the second half of the year, improving on losses of 22m for the half-year to June 2009.

Mr Cornish said: "We have had a year of the largest, deepest and longest recession on record but we turned a corner in the second half of the year."

Gross mortgage lending at the mutual was just 900m for the year, while mortgage assets decreased by 1.3bn.

But Mr Cornish pledged to more than double its mortgage lending to 2bn in 2010.

The proportion of mortgages in arrears by three months or more was 1.84 per cent, which YBS said is below the Council of Mortgage Lender's industry average.

The society attracted over 140,000 new members in 2009, taking total membership to over 2.1m, and 250,000 new savings accounts were opened.

Member savings balances increased to 13.8bn and the Yorkshire has group assets of 22.7bn.

It also opened 10 new branches. Meanwhile, the society said it has reduced its reliance on wholesale markets with over 90 per cent of mortgages funded by member savings.

Mr Cornish said: "Throughout the year our actions have been driven by our primary focus to provide financial security and long-term value to our members.

"This has been clearly demonstrated by a number of specific actions we have taken."

Looking forward to 2010, he said: "The recovery has started but it will be slow and patchy.

"I think house prices will end where they started at the beginning of the year. It will take time to get the economy back to where it was and consumers will be very cautious, saving more and cutting back on borrowing. Lenders will also have to be cautious.

"We have already returned to profit in the second half of the year and I expect that to continue throughout 2010."

In December YBS announced its planned merger with the Chelsea Building Society, following its merger with the Barnsley Building Society last year.

Chelsea Building Society yesterday reported a pre-tax loss of 27.1m for 2009, compared to a pre-tax loss of 39.3m in 2008.

The merger, which was approved by 86.68 per cent of shareholding members and 85.44 per cent of borrowing members last month, creates a 35bn mutual with more than 2.7m customers, 178 branches and 75 agencies in the UK.

Mr Cornish said he expects further consolidation within the sector but added that YBS's focus will be on integrating Chelsea over the next 12 to 18 months.

He added: "Our agenda through the merger with Chelsea Building Society is to provide a compelling alternative to banks and a real choice to consumers across the UK."

YBS said it would continue to lobby against what it views as the unfair treatment of building societies in relation to the banking sector.

Chelsea cuts its deficit

Chelsea Building Society reduced its annual loss in 2009, it announced yesterday.

The mutual reported a pre-tax loss of 27.1m for 2009, compared to a loss of 39.3m in 2008.

It had already reported a 26.3m loss at the half-year stage.

During the second half of 2009 Chelsea has been investigating a number of suspected buy-to-let fraud cases.

But it said a significant number of cases show no evidence of fraud.

This resulted in the one-off charge, which reflected a writedown in the value of properties in its buy-to-let portfolio that had been fraudulently inflated, being reduced from 41m at the half year to 32.6m.