The Derbyshire trips up

People with mortgages or savings accounts at The Derbyshire building society are entitled to wonder what on earth was going on there last year.
Back in January, the society revealed that its chief executive of eight years, Peter Richardson, had suddenly decided to retire early.
It was, they reassured us, his own decision and unconnected with an announcement by an industry ratings agency that it would be keeping an eye on The Derbyshire because of potential exposure to bad debt.
My colleague Richard Tresidder, the Evening Post’s Business Editor, suspected there was more to it than that.
He was right.
Late last week, The Derbyshire issued a results announcement that revealed that its profits fell by nearly half last year.
Those results do not make for pretty reading.
They show that the society has decided to abandon a four-year project to upgrade its IT systems. That has cost it more than £10 million.
It has hugely increased the amount of money it has set aside for bad and doubtful debt. That has cost it £4.5 million.
Its management expenses – what it costs to run the business – were up a whopping £7 million on the previous year.
And were it not for the £7 million that it banked by selling off a subsidiary in the Isle of Man, a pre-tax profit that had been £23.5 million in 2006 would have been only £2.6 million in 2007.
Mr Richardson’s successor, Graham Picken, said he was “disappointed” by the figures, a judgement that may strike some as an under-statement.
Now, before you start reaching for your savings account pass book, be assured that The Derbyshire is not and never will be a Northern Rock. Where Northern Rock was an aggressive bank built on a bet-the-house business strategy, The Derbyshire is a mutually-owned building society that has plenty of money and doesn’t engage in obscure financial gymnastics.
But it is precisely because of this perceived status as a safe haven that its members are entitled to ask how it came to flush so much money away in the space of one year – especially when the biggest of those losses had nothing to do with the credit crunch that’s hobbled everyone else.
Building societies don’t like washing dirty linen in public, and discussions about the management failings that led to a £10 million write-off on an IT project are unlikely to wander beyond The Derbyshire’s boardroom.
What has wandered beyond the boardroom are some of the people who used to work there: besides a new chief executive, The Derbyshire also has a new financial director and a new chairman.
In a perverse way, you can take some solace from these figures, since the financial bad news is now out of the way. The society says it will now save £6 million on running costs and you can bet your bottom dollar it will play ultra-safe this year.
So expect financial performance to be broadly back on track in 2008.
Underneath all the rubbish, The Derbyshire is a sound, substantial business that raked in a lot of savings and wrote a lot of mortgages last year.
So is it really guilty of anything? Well, it’s bang-to-rights on bad timing at the very least: in the year of the credit crunch, it didn’t half choose its moment to trip up.