Two building societies preparing to merge, Yorkshire and its smaller rival, Chelsea, have seen their bad debts doubled which has led to losses escalating to a combined total of nearly ?40 million.
Chelsea suffered from a ?41 million mortgage fraud last year, an unfortunate follow up to the collapse of the Icelandic banking system which cost the company ?44.3 million.
The company managed to stem its losses in the second half of the year by a stabilisation in the markets and reasonable trading conditions. The H2 loss was marginalised to ?800,000 over the six month period.
Yorkshire saw its mortgage bad debts increase from ?25 million to ?59 million, which led to the society seeing a ?12.5 million loss before tax in the first six months of 2009. However, in the final six months it managed to make a ?10 million profit.
The societies are expected to merge formally on 1 April, creating a lender with assets of approximately ?35 billion and 178 branches.
Yorkshire chief executive Iain Cornish told The Daily Telegraph: ?We are seeing green shoots in the housing and mortgage markets and are very optimistic about the future prospects of the group. Our agenda, through the merger, is to provide a compelling alternative to the banks.?
Both lenders are withdrawing credit from the mortgage market as both are struggling with funding. Yorkshire withdrew ?1.3 billion from households while Chelsea reduced lending by ?773 million. On the plus side, Yorkshire did manage to attract ?110m of extra savings, bucking the trend in the sector, which has lost ?7 billion of customer deposits in 2009.
Yorkshire’s core capital remained 12.2 per cent, even with the losses while Chelsea has a 9.6 per cent capital ratio.
