Kent Reliance to create new bank with JC Flowers investment

Kent Reliance building society is restructuring and creating a new bank as part of a £50 million refinancing by private equity firm JC Flowers.

The building society is to transfer its business, assets and liabilities to a new bank trading under the name Kent Reliance Banking Services.

It will disband its current society and replace it with a new provident society, Kent Reliance Provident Society, which will own the majority of the new bank.

Members of the existing society will be entitled to become members of the new provident society.

Kent Reliance chief executive Mike Lazenby (pictured) said the restructure was necessary in order to raise capital for the business.

'Recent pressure on KRBS's capital has proved challenging, particularly as building societies cannot currently raise capital in the way banks do,' he said.

'To meet this challenge, we have been working with a team of advisers to produce a structure that enables new capital to be introduced, whilst simultaneously providing a basis which can allow our members to remain as a mutual organisation.'

Both Kent Reliance and JC Flowers representatives will sit on the board of the bank, and JC Flowers will inject £50 million into it in return for a stake. Kent Reliance will own a majority of ordinary shares in the bank, although the company said 'this position could change in future'.

Unlike banks, building societies cannot raise core tier one capital through the issue of ordinary shares, but needs to generate the capital by making profits and retaining them. But Kent Reliance said in the current market environment it was unable to generate the profits need to increase tier one capital.