Cambridge is the first society after giant mutual Nationwide four years ago to issue a class of share developed after the financial crash called Core Capital Deferred Shares (CCDS).
The issuance of CCDS bolsters a society’s balance sheet by improving its Tier One capital ratio – while at the same time allowing it to lend more to borrowers.
Cambridge has secured a £15m investment from the regional pension fund that will allow it to lend an extra £200m to about 1,000 families, assuming they take out average loans of about £200,000 each, a spokesman for the society told Mortgage Solutions.
The spokesman said the money would be used almost exclusively to provide additional mortgage finance with some of the funds earmarked for first-time buyers “as we are committed to supporting, where possible, those who want to get a foot on the housing ladder”.
Robin Fieth, chief executive of the Building Societies Association, said: “It is good to see this method of capital raising work for the 14th largest building society as well as the world’s biggest [Nationwide]. While retained profit will remain the primary way that building societies create capital, an alternative is valuable.”
One analyst interviewed by Mortgage Solutions said the Cambridge move “could be a template for others and has the merit of linking regional pensions funds with regional growth and development”.
Nationwide today announced an extension of its CCDS programme that kicked off in 2013 by disclosing that it was looking to issue between 3.5 million and 5 million CCDS, equivalent to an approximate range of £500 million and £750 million. The new shares will be consolidated with the 5.5 million it issued four years ago.
Under the terms of the Cambridge deal, the pension fund could receive a distribution fee annually – similar to a dividend – but there is no guarantee. That would be up to the discretion of the directors and decided on the basis of financial prudence.
Cambridge said it was the party that approached the pension fund, and added the scheme would boost the society’s capital by 25% “while giving the fund a trusted place to invest its members’ money”.
Stephen Mitcham, chief executive of Cambridge said: “The Cambridgeshire County Council Pension Scheme is the ideal partner as we share the vision of delivering long-term benefits for residents and the local economy. This synergy replicates the original founding of The Cambridge which was Cambridge people coming together to help themselves and others.”
Mitcham said the structure of the investment would preserve Cambridge’s status as a member-owned, mutual organisation as the shares come with only one vote regardless of how many an investor buys.
Cambridge provided record lending last year of £265m.