Newcastle Building Society out of the red

Mar 11 2010 By Karen Dent, The Journal

NEWCASTLE Building Society hopes to see a profit this year after bouncing back from a £26m loss caused by a £43m write-off in deposits it held with two failed Icelandic banks.

The business has revealed that it broke even last year after building up its savings and mortgage business after taking on a record 50,000 new members in 2009.

It now has around 500,000 customers and last year it took in a record income of £490m on savings products, driven largely by new ISAs it launched over the year. This contrasts with a £2bn outflow from the UK building sector as a whole.

The Newcastle has been paid back £6.7m by the administrators of the UK subsidiaries of Icelandic banks which had left it £43m out of pocket when they collapsed two years ago, but it expected the payment of the rest of the money would take some years.

Chief executive Colin Seccombe said: “It is pleasing to restore the society to a more stable position but we must recognise the continuing pressure on us, especially as the high cost of securing funding, combined with the low interest rate environment, impacts the margins.”

And the building society is confident that it will further build its Solutions business, which manages products like savings cards for other companies, this year and is in talks to secure two large deals.

Mr Seccombe said there may have to be further investments in this business, which employs around 100 of its 1,100 staff, but that the “longer term view is most encouraging.”

Newcastle said it had improved its funding profile resulting in lending that is now 100% funded by retail deposits compared with just 86% in 2008. The building society reduced its wholesale funding ratio from 28% to 9% over the year.

Impairment losses on loans and advances to customers also improved over the year to losses of £8m compared with £12.1m in 2008 - the society added that it had maintained lending quality with its three month residential arrears at around a third of the Council of Mortgage Lenders (CML) average.

Mr Seccombe, who retires today, is about to be replaced by Jim Willens, deputy chief executive of the society since December 2009. Mr Willens stressed that the building society already had a good business fit with its members and continuing to improve service to its members would be its main focus in the year ahead.

He said that he hoped the society would return to profit this year and stressed that despite continuing consolidation in the sector he had no intention of discussing a sale of the Newcastle.