Newcastle8%pibs Regulatory News (MBSR)

Manchester Building Society announces Capital Issuance

8 April 2013

Manchester Building Society (the "Society") is pleased to announce that it has agreed a private placement of £18 million of Profit Participating Deferred Shares (the "Capital Issuance"), on completion of its 2012 Accounts. These shares will qualify as core equity tier 1 capital.

The Society has decided to alter the accounting treatment of its long-term mortgage book and related interest rate hedges under IAS39. This change in accounting treatment will result in a material downward restatement of the Society's opening 2012 reserves. The Capital Issuance will ensure a sound capital base for the Society in light of this expected restatement. Full details of the changes will be published in the Society's annual results for 2012.

The Society expects to finalise its accounts and announce its financial results for the year ended 31 December 2012 by 30 April, following which the Capital Issuance will be completed, and hold its Annual General Meeting by 28 June 2013.

The Society has discussed the Capital Issuance, the changes to its accounting treatment and its revised reporting schedule with its regulators and received the necessary approvals.

David Cowie, Manchester Building Society Chief Executive, said "We are pleased to have agreed this fund raising, which will enable the Society to maintain a sound capital position as we make a number of changes to the accounting treatment of our long term mortgage book and interest-rate hedges. This initiative, combined with our on-going underlying profitability and robust funding, will enable us to continue to serve our members effectively, providing them with a comprehensive range of attractive products and excellent service. Through the delivery of our strategic plan the Board will seek to strengthen the Society's capital position further over time."

For more information contact:

Chris Gee at Manchester Building Society on Tel: 0161 923 8002

David Cowie at Manchester Building Society on Tel: 0161 923 8001

Evercore Partners acted as financial adviser and Addleshaw Goddard as legal adviser to the Society.

Notes:

Background to change in accounting treatment:

- The Society entered into interest rate swap arrangements to hedge the interest rate risk to the Society arising from its book of fixed rate mortgages with longer maturities. These swap positions were accounted for using "hedge accounting" principles in accordance with IAS39. Consequently, the volatility in the market value of the swaps was offset in the Society's accounts by a corresponding but opposite fair value adjustment to the mortgages hedged by the swaps

- The Society and its auditors have determined that a number of the swap arrangements it had entered into now do not meet the requirements for "hedge effectiveness" under International Financial Reporting Standards. The Society's 2012 results are therefore being prepared on this basis and the 2011 balance sheet and income statement will be restated to recognise the reversal of the positive fair value adjustments previously made to the mortgage book.

A summary of the terms of the Profit Participating Deferred Shares ("PPDS") is set out below:

- The PPDS are deferred shares for the purposes of Section 119 of the Building Societies Act 1986, as amended;

- The PPDS are perpetual instruments with no maturity date or right to repayment other than on a winding-up;

- In the event of a winding-up, the PPDS would rank below claims in respect of the Society's PIBS;

- Save as described below, the holders of the PPDS are eligible to receive a dividend, at the discretion of the Board of the Society, of up to 30% (the "Participation Percentage") of the annual consolidated post-tax profits of the Society (calculated prior to payment of the PPDS dividend and subject to certain other adjustments);

- The PPDS will also absorb the Participation Percentage of any consolidated post-tax losses recorded by the Society, any such amount being debited to a reserve account maintained by the Society for the purpose of the PPDS (the "PPDS Reserve Account"). Any net profits which are eligible to be paid to holders of PPDS as dividends but which are not so paid will be credited to the PPDS Reserve Account;

- No dividends may be paid on the PPDS in years where the Society incurs consolidated post-tax losses or where the PPDS Reserve Account is in deficit as a result of previous years' losses;

- Dividends on the PPDS are non-cumulative; and

- The PPDS are not protected deposits for the purposes of the Financial Services Compensation Scheme.

This announcement, including information included or incorporated by reference in this announcement, may contain "forward-looking statements" concerning the Society. Generally, the words "will", "may", "should", "could", "would", "can", "continue", "opportunity", "believes", "expects", "intends", "anticipates", "estimates" or similar expressions identify forward-looking statements. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond the Society's ability to control or estimate precisely, such as future market conditions and the behaviours of other market participants, and therefore undue reliance should not be placed on such statements. The Society assumes no obligation and does not intend to update these forward-looking statements, except as required pursuant to applicable law.

Evercore Partners International LLP ("Evercore Partners"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for Manchester Building Society and no-one else in connection with the Capital Issuance and will not be responsible to anyone other than Manchester Building Society for providing the protections afforded to customers of Evercore Partners or for providing advice in relation to the Capital Issuance or in relation to the contents of this announcement or any transaction or arrangement referred to herein.