Chelsea, Newcastle and Principality are believed to be among the UK building societies considering whether to strengthen their balance sheets by following the lead of rival West Bromwich and converting outstanding debt into a new financial instrument.

West Brom, Britain’s eighth-largest building society, struck a deal on Friday to convert £182.5m of debt into 'profit-participating deferred shares'. The agreement ensures its core tier-one capital ratio moves from 6.8% to 11.6% and is therefore within the limits set by the Financial Services Authority (FSA).

The FSA is conducting stress tests of UK building societies and a number are expected to breach their 7% minimum tier-one ratio, forcing them to also adopt PPDSs.

Sunday Telegraph