West Bromwich Building Society today stepped back from the brink of collapse after announcing a debt-for-equity swap deal with its bondholders.

The deal, which is due to be completed in July, involves the exchange of West Bromwich’s subordinate debt, totalling £182.5 million, for a new instrument, profit-participating deferred shares (PPDS).

The announcement came as the firm released its annual results early, posting a £48.8 million pre-tax loss for the year to the end of March.

The shortfall, caused by losses in buy-to-let, sub-prime and commercial lending, is in comparison with a £47.8m profit for the previous year.

It said that the capital exchange would ‘materially strengthen the society’s core tier 1 capital ratio from 6.8 per cent to 11.6 per cent’, adding, ‘At this level, the society’s core tier 1 capital ratio is amongst, we believe, the highest in the sector.’

A bank or building society’s tier 1 capital is a key measure of financial strength and represents the amount of capital held on the balance sheet as a proportion of a bank's loan book.