Bank of Edinburgh surrenders licence

BANK of Edinburgh, the Scottish Amicable-backed organisation set up to buy building societies, has surrendered its banking licence and may soon disappear.

The licence was surrended by agreement with the Bank of England, and the rump company has now been put up for sale. If a buyer is not found it will be broken up and the assets handed back to shareholders.

The decision goes back to the bank's failure last year to take over Heart of England Building Society. This was because the Bank of England insisted that the main shareholders, including Scottish Amicable, write a letter of comfort promising to pick up the tab if future problems arose. They refused.

The Treasury and the Building Societies Commission were also concerned that a specialist bank set up to buy building societies might lead to a bidding war in which societies' depositors were offered ever more tempting incentives to vote in favour of takeovers.

The original plan was to raise pounds 26.25m to buy building societies but only pounds 7.3m of the capital was called up. Russell Frith, the finance and only remaining director, said net assets were pounds 4.7m at the end of December against pounds 5.4m a year earlier.

This suggests that shareholders, including Scottish Amicable which has 39.2 per cent, will take a small loss if the company is broken up. The other big shareholders were Les Mutuels de Mans with 17.1 per cent and Grosvenor Venture Managers with 9.6 per cent.

Mr Frith said the concept remained viable but because of the Bank of England's insistence on letters of comfort from all shareholders with more than 15 per cent it was likely to be attractive only if there was a single shareholder.