YBS buys back £228m of capital

The UK’s second-biggest building society yesterday bought back about £144m of permanent interest-bearing shares (PIBS), plus a combined £84m of long-dated debt from three tranches, through a tender offer.

Banks and building societies are required to hold capital as a backstop in a crisis, but new rules are limiting the types of instrument which count towards core tier one capital – the purest type of capital.

In June it had a 12.9 per cent core tier one ratio – a key measure of financial strength – and among the highest in the sector.

The Yorkshire expects to make a profit of up to £50m on the buyback over time, after paying a discount on the securities’ original price. This profit will count towards its capital base. It paid 82p in the £1 for the PIBS.

“It’s a real win-win,” said the mutual’s director of corporate development, Andy Caton. “It boosts the financial security for the Yorkshire Building Society and it’s very investor-friendly.

“By buying this back at a discount we create core tier one capital and sacrifice old-style capital that we issued many years ago.

“Capital is there to provide security for members and gives us the ability to support potentially higher levels of mortgage lending and investment in the business.”

Investment includes upgrading back office systems and opening new branches, he added.

Mr Caton also reiterated plans to tap the Bank of England’s Funding for Lending Scheme – which offers discounted debt to UK banks and building societies in return for boosting lending – but declined to say how much it will draw down.