Halifax customers shocked at statement

BY JOHN WILLCOCK

Halifax Building Society customers said they were "shocked" at its statement in the High Court yesterday that it had not yet decided whether it would have to raise extra capital following merger with the Leeds.

On the first day of a week-long hearing into whether building society rules will allow the societies to provide 2.5 million mortgage borrowers with free shares, Halifax said the flotation in two years' time may involve an extra, public share offer.

Counsel for Halifax said the two societies, which propose to merge this summer and then convert to bank status, had not yet decided whether to issue extra shares to the public as well as to members.

Serge Lourie, a spokesman for Halifax Action Group, which claims to have been contacted by over 500 customers, said the statement was "bizarre".

The extra capital may be needed to meet regulatory requirements, Mr Lourie said. "We need to know whether they intend to do this before we vote on conversion to plc status."

A Halifax source explained that societies converting to plc status are required under the Building Societies Act to set up a Priority Liquidation Distribution (PLD). The PLD is an extra safeguard for all existing depositors and investors. If anything went wrong following the conversion the PLD would be able to reimburse all depositors completely.

Halifax is hoping that the Bank of Englandwill allow the PLD to be included in the bank's capital for regulatory purposes. If not, the bank may have to raise extra capital through another share issue.

But existing Halifax and Leeds customers would have first bite at the cherry, insisted the source, and be offered the extra shares first. The extra capital needed would be no more than around 5 per cent of the banks' capitalisation, or around £500m, he said.

Mr Justice Chadwick will announce his ruling next Monday. The Building Societies Commission is arguing against the legality of share payments to mortgage borrowers.