Record profits as Leeds defies the downturn

The sixth largest building society in the UK said its operating profit before losses and provisions increased by 17 per cent to 80.1m compared with 68.6m in 2008.

Pre-tax profit rose to 31.7m from 20.3m while capital and reserves – a key measure of financial strength – increased to a record 543m.

The society attracted 71,000 new members last year, taking total membership to more than 680,000. The savings balances also rose by 225m to a record level of 6.8bn.

New lending fell slightly to 922m in 2009, compared to 1.28bn the previous year. However, chief executive Ian Ward said this reflected the much smaller UK market with net mortgage lending, which declin-ed to less than 12bn, only around a quarter of 2008 volume.

Speaking to the Yorkshire Post, Mr Ward said: "We are very pleased with our results in what are clearly challenging market conditions.

"We lent over 900m, which is still a lot of money and we are very much open for business. The mortgage market itself is shrinking quite a lot so I think our lending is still a good performance. However, we hope to increase it to at least 1bn over the next year."

The building society sector has been battered during the financial crisis, consolidating to survive and hit by stiff competition as banks left unable to rely on wholesale markets for funding have instead turned to savers' deposits.

The impact of the recession led to losses from borrowers unable to pay their loans and provisions for future predicted losses rising from 32.1m in 2008 to 52.5m for 2009.

This included the fallout from its rescue of East Yorkshire shopping village Hornsea Freeport, which went into administration.

Mr Ward revealed yesterday that the society bought it for 7m after lending 16m to the former owners Hornsea Estates and Hornsea Estates (No.2) in 2007.

The mutual plans to sell the retail outlet in the future once it has increased in value.

Mr Ward said its euro-savings division is "going well" after Leeds became the first UK mutual to enter the euro-savings market in Spain and Gibraltar at the end of September.

In the first few months, savings in Spain reached about 3m while in Gibraltar there was a net increase in balances of over 10m.

Mr Ward believes there will be further consolidation in the building societies sector in 2010 but said Leeds would only want to acquire another mutual if it could keep its name and its Leeds base, which it did in 2006 when it merged with Mercantile Building Society.

He said: "We are determined to remain a successful independent building society. The only opportunities we are interested in are where we remain Leeds Building Society and we are based in Leeds. We only want to acquire something that is going to add value to our business." Mr Ward said the society had maintained strong credit ratings from both Moody's and Fitch, despite the tough economic environment.

He warned of another challenging year ahead but added that the society is well-placed to deal with economic difficulties. He said the society is aiming to build up a war chest of over 60m for the future.

"Leeds Building Society has delivered a sound performance in 2009, with rising retail balances, increased profitability and even stronger reserves further underlining its successful, sustainable business model", he said.

"It will be a tough market again in 2010. But we are confident with our prudent approach to lending, keen cost control and strong levels of capital, we are in an excellent position to deal with the challenging economic outlook for 2010 and beyond."