🔔 Manchester Building Society’s woes continue

Manchester Building Society’s financial woes have continued, with news out that investors who hold Permanent Interest Bearing Shares (PIBS) with the provider, could lose much of their investment.

The reason for much of its strife stems from bookkeeping errors made between 2006 and 2013, along with legal costs incurred when suing former auditor, Grant Thornton. Last year, Manchester Building Society was awarded just £335,727 after suing for £49million, while forced to pay £1.9 million in costs to Grant Thornton. It appealed this decision but last month, the Court of Appeal upheld the original ruling.

Unlike cash deposits, which are protected by the Financial Services Compensation Scheme (FSCS), PIBS are, as the name suggest, shares - a way for a building society to raise money without demutualising. In effect, a PIBS holder is lending their money to the building society in return for a set interest rate and the expectation of receiving their capital back at some stage when they sell their holding. Crucially, PIBS are not covered by the FSCS.

Manchester Building Society issued £5million PIBS in 1999 paying 8% a year and another £10million were issued in April 2005 paying 6.75%. However, the interest is not guaranteed and in fact none has been paid on either tranche since 2016. At that time, we reported that Manchester Building Society had contacted its savers to advise them to reduce their savings holdings to within the FSCS limit, which was £75,000 at that time. And they also reduced the maximum allowance deposit to new accounts to £75,000 at the same time – a maximum that still applies.

According to an article in the Sunday Telegraph, one customer and his wife who invested £50,000 each in 2010 have said that, as well as not receiving any interest since 2016, the current value of their £100,000 investment is just £15,000 – an 85% loss.

Whilst Manchester Building Society has not been active in the mortgage market for some time, it does still offer some savings accounts, which are covered by the FSCS, although they are not particularly competitive.

For example, their Easy Access Saver is paying 0.80% - far below the current best buy rates of 1.50% AER from Cynergy Bank* and Marcus by Goldman Sachs. The Family Building Society pips both of these accounts by the smallest margin – it pays 1.51% on its Premium Saver (3) - but the minimum deposit is £15,000 and no extra funds can be added after 8th March 2019.

*We are occasionally paid by some providers if you click through from our Best Buy Tables and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).

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