Britannia Building Society exposed to credit crunch

Britannia, the second largest mutual lender after Nationwide, is exposed to the credit squeeze because its subsidiary, Platform, relies on capital markets for much of the money it lends.

Consequently, borrowers and savers with Britannia could see the value of their yearly member reward (the mutual’s equivalent of a dividend) decline next year as a consequence of the credit crunch surrounding the mortgage sector.

Platform is as big a business as the society’s Britannia-branded operation and has produced far more profit over the last few years, much of which gets handed on to members through their annual member reward.

However, the Platform business is under pressure and Britannia has warned that this year’s profits are unlikely to exceed levels experienced last year.

Membership reward totalled £51 million in 2006 but the society said this could be impacted this year.

A spokesperson for Britannia said they have not had to make job cuts yet and that Britannia’s core member business are in good health. Additionally, the spokesperson added that as Britannia are not under pressure to pay dividends to shareholders, the company does not need to focus on short-term profits.

Britannia’s vulnerability to the credit squeeze is rare among mutuals, it is likely that other societies will profit growth fall away or reverse for other reasons.

Many societies have withdrawn from historically profitable areas of commercial and landlord lending or have stopped lending to borrowers who have a low credit rating.

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