Nationwide Building Society, the UK’s largest mutual, has
reported a 67 percent fall in net profits from £495 million ($788.7
million) to £162 million for the year to 4 April, hammered by
impairment losses which almost quadrupled to £394 million against
£106 million in the previous year.
Nationwide also took a major hit from the soaring cost – a whopping
£258 million for the year – of its levy to the UK’s Financial
Services Compensation Scheme (FSCS), designed to protect customer
deposits.
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One-off transformation costs of £107 million, in connection with
the restructuring of the society following the integration of the
Portman, Cheshire and Derbyshire building societies into Nationwide
also hit the bottom line.
Total revenue for the year, net of
insurance claims, was up 5 percent at £2.3 billion, while total
assets increased by 13 percent to £202.4 billion.
Following release of the results,
Nationwide chief executive Graham Beale hit out at the FSCS charge
and said it was “illogical and unfair” that the levy was not linked
to the level of risk posed to the financial system by individual
institutions, but instead was calculated by share of the retail
savings market.
Beale also railed against what he termed
“aggressive deposit taking” by state-owned institutions such as
National Savings & Investments and Northern Rock, estimating
they grabbed in excess of 70 percent of new savings in the second
half of 2008.
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By GlobalDataBy the end of the society’s fiscal year,
its overall share of the savings market fell to 10 percent from 17
percent a year ago.
In the mortgage sector, Nationwide’s
market share grew from 7.1 percent to 8.2 percent, but net lending
– which includes the amount of loans repaid as well as new loans
taken on – slumped to £1.6 billion from £6.7 billion.
Despite the challenging environment, Beale
was able to flag-up a number of highlights. In particular, the
Nationwide balance sheet remained strong, ending the fiscal year
with a core Tier 1 capital adequacy ratio of 12.1 percent of
risk-weighted assets and, as Beale pointedly remarked, the society
was the largest UK banking institution not to have raised capital
or sought a government bailout.
Forecasting further consolidation within
the mutuals sector, Beale said the society could support “one if
not more” acquisitions in the year ahead.
The society also reduced its dependence on
wholesale funding during the year, down from 31 percent to 28.6
percent, one of the lowest levels within the UK market.
And while Nationwide reported that
mortgage accounts three months or more in arrears jumped by 20
basis points to 0.6 percent, this figure compares favourably to the
current industry average of 2.39 percent.
The society’s online channel performed
strongly, with sales up 29 percent over the previous year, while
internet banking activity jumped by 36 percent.
But looking ahead to the remainder of 2009
and beyond, Beale sounded a note of caution, warning of more loan
losses and reduced underlying profits due to ongoing pressure on
its net interest margin, which declined by 19 basis points to 0.93
in the six months to April 2009 compared to the year to April
2008.
Release of Nationwide’s results on 28 May
came at the end of a difficult month for the mutuals sector,
following ratings agency downgrades on fears of increased credit
risk. Moody’s downgraded nine societies fearing further bad debts,
while rival credit agency Fitch downgraded five societies;
Nationwide featured on both agency hitlists.
Newcastle Building Society, which reported
2008 losses of £35.7million, was another society to suffer
downgrades by both Moody’s and Fitch, while rumours persist that
the West Bromwich, heavily exposed to the buy-to-let mortgage
sector, may be vulnerable to a takeover.
|
Performance |
|||
|
Nationwide Building |
|||
|
FY09 |
FY08 |
% change |
|
|
Underlying profit before tax (£m) |
393 |
781 |
-49.6 |
|
Reported profit before tax (£m) |
212 |
686 |
-69.1 |
|
Lending – residential gross (£bn) |
18.9 |
27.1 |
-30.2 |
|
Lending – residential net (£bn) |
1.6 |
6.7 |
-76.1 |
|
Total loans and advances to customers |
155.4 |
142.8 |
8.8 |
|
Member savings balances (£bn) |
128.3 |
113.8 |
12.7 |
|
Cost-income ratio – reported basis (%) |
60.3 |
59.4 |
90bps |
|
Source: Nationwide Building Society |
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