Debt-for-equity swap of the week!

From The Times:

West Bromwich Building Society has staved off collapse by signing bondholders up to a £182.5m debt-for-equity swap that will restore the lender to financial health.

The mutual was close to breaching regulatory capital requirements after suffering heavy losses on its buy-to-let, sub-prime and commercial lending books. Its auditors, KPMG, have also been unwilling to sign off the accounts...

Under the arrangement, the subordinated debt holders will swap their £182.5m of loans for an instrument that shares in the members' profits. As such, it will be the first time in society history that members will have to split their benefits with an outside investor...

West Brom last year had £394m of "members equity" and £192m of subordinated debt. After the debt-for-equity swap, it is thought bondholders will have rights over 20pc of the society's profits. The instrument may pay interest, reducing the profit share.

Exactly! That's the best way of fixing the banks, why on earth didn't the government make RBS, HBOS, Northern Rock and so on do exactly the same? All that taxpayers' money the government is using is not really "saving the banks", it's "saving the bondholders", or "saving the SPV's", or "saving the money market funds" (the shareholders are pretty much doomed whatever you do).

Via Devo.