A BUILDING society is confident of legally holding onto money invested in it by a collapsed Icelandic bank.

Newcastle Building Society had £43m in Icelandic banks at the time of their collapse in October.

Yesterday, chief executive Colin Seccombe said there was a good chance of recouping a significant proportion of that money, partly because the Newcastle had a failed Icelandic bank’s money invested with it and had an “excellent” legal case for keeping it.

The Newcastle yesterday boosted its capital through the issue of £10m permanent interest bearing shares (PIBS), the building society equivalent of a bank share issue, which were snapped up by City institutions.

Despite an underlying operating profit for 2008, the society will post a loss this year, as a result of its exposure to the Icelandic banks.

But Mr Seccombe stressed the Newcastle was in no trouble and that the shares move was to ensure it retained strong reserves during “unprecedented market conditions”.

In order to ensure its members’ interests were protected, the Newcastle’s board had worked on the assumption it would only recover a “nominal” amount of the £43m for capital planning purposes.

Mr Seccombe said: “What we have disclosed is the absolute maximum possible loss, in reality we expect it to be substantially better.

“We had money with them, but one of them had money with us and we are sort of holding onto that and we are very keen to continue holding onto that.

“That rather annoys the administrators of the UK subsiduaries of one of those banks so that is meandering its way towards a legal conclusion.

“Our very strong legal advice is we have an excellent case so we are very hopeful and confident that will be successful.

“That then will go some way to reducing the overall exposure.”

Mr Seccombe went on to say that although the Icelandic banks were thought of as having gone bust, they were not actually in any insolvency arrangement.

That meant that although they could not repay everything, they would be able to repay a proportion, he said.

Mr Seccombe added: “We anticipate that big headline figure will come down substantially.”

On the issuing of PIBS yesterday, Mr Seccombe said: “We don’t really have to do it because of the exposure. Our members have been used to us having a very strong base and taking the hit to our reserves would have impacted on that a little bit, so the view was we must try and re-establish that wonderful reserve position.

“We were able to do that by going out and getting that £10m of PIBS and ascertained we can be very confident about the business model we have got. What this is saying is there are external institutions who have the same view as us and are keen to invest with us.”

The Newcastle is not planning to make any redundancies, but is assessing its requirements for next year and recruitment plans have been put on hold.

The society has recruited about 250 people over the past year and has grown from 800 to 1,300 employees since 2005, making it one of the largest private sector employers in the North-East.