Nationwide: 'Don't call us Co-op'

Nationwide branch

If there is a financial institution that feels grumpy at the woes of Co-op Bank, it's Nationwide.

Because the UK's largest building society fears that the near collapse of Co-op Bank has tarnished all financial mutuals - or banks owned by customers (members) rather than by conventional investors.

As it happens, Co-op Bank wasn't a mutual at the time it ran into difficulties: it was (and is) a PLC owned by a mutual, Co-op Group, so its "mutual ethos" was transmitted by the owner.

But that's a nice distinction, which many may not have noticed. Nationwide fears that the debacle at Co-op Bank has somehow created an impression that so-called "good" or more ethical banking is incompetent banking.

So Nationwide is keener than usual that you should notice its latest financial results, published today.

These show that it is increasing its share of mortgage lending and capturing people's savings at a terrific pace.

In the six months to the end of September, its share of all gross mortgage lending was 15.4% - some 50% more than its so called natural market share (based on its existing stock of loans).

As for the increase in its deposit balances, these rose £5.4bn - representing a quarter of all such new saving in the UK.

These growth rates may bring back chilling memories of Northern Rock's dash for expansion shortly before it went pop. But Nationwide insists it is not taking dangerous risks.

On the one hand, its net mortgage lending was almost identical to the increase in its net savings: or to put it another way, it is not dependent for lending growth on unreliable sources of finance, as Northern Rock was.

Also the average ratio of mortgage loans to the value of houses, or LTV, for new mortgages was 69%, and the LTV on its stock of mortgages is 49%: Nationwide is not going bonkers by lending more than homebuyers can afford to repay.

Even so, Nationwide provided mortgages to a remarkable 22% of those less able to provide chunky deposits, first-time buyers, in the period. And some of these were 95% mortgages.

In other words, it is less vulnerable than the other banks to the charge that it is discriminating against those trying to get on to the housing ladder.

And this success in serving first-time buyers probably explains why Nationwide has not found it necessary to sign up to the government's second phase of the Help to Buy mortgage-guarantee scheme.

This implies that the perceived need for Help to Buy is something of an indictment of the competence of the big, conventional banks - a market failure that doesn't apply to a big mutual.

Financial strength

How does all this growth translate into profits?

Well pre-tax profits rose 162% to £270m on a statutory basis; and the increase was 155% to £332m, excluding assorted one-offs and funnies.

As for the all important issue of its ability to withstand shocks, well on the Prudential Regulation Authority's recently reworked definition, its ratio of loss-absorbing, tier 1, core-equity capital to risk-weighted assets (oh yes) rose from 6.8% to 8.1%.

Importantly, that is well clear of the 7% minimum threshold.

But famously, and to the deep chagrin of Nationwide, it and Barclays flunked the PRA's other measure of capital strength, the adjusted "leverage" ratio of equity to gross assets.

But that's being fixed.

In the period this ratio increased from 2% to 2.1% - which the bank's chief executive Graham Beale tells me is an ahead-of-schedule improvement.

He insists that the bank is on course to meet the 3% minimum by the 2015 deadline.

So Nationwide can claim, with credibility, to be a wholly different kettle of mutual-banking fish to the Co-op: fresh and vital, rather than stinky and rotting, perhaps.

But there remains the issue for Nationwide, as for all mutuals, that in a crisis, it can't raise additional capital in a hurry, in the way that banks can, in that it can't tap outside investors for funds.

But, as I've pointed out before, Nationwide has a cunning plan to create a new category of capital - with the unappealing name of Core Capital Deferred Shares - that would allow it and other mutuals to tap investors for something that looks quite a lot like ordinary dividend-paying shares.

Mr Beale tells me that Nationwide has solved all the technical problems with the creation of the newfangled capital. And I wouldn't be surprised if we saw a few hundred million quid's worth of this stuff flogged to the City in the coming weeks and months.

Which would go some way to levelling the playing field between conventional banks and building societies, when it comes to their ability to protect themselves from unexpected nasties.

So to rework the cliche, news of the demise of mutuals - extrapolated from Co-op Bank's conversion into a hedge-fund owned, stock-market listed bank - may be a bit previous.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 151.

    149 150

    In short power corrupts and absolute power corrupts absolutely (e.g. Lord Acton's dictum of 1887)

    That is what has happened to our society & more blatantly to banks and banking (& indeed all privatised utilities & similar natural monopolies). It has even perverted academic rigour of the non-rigorous areas, such as economics.

    The people have to take back the state from the usurpers!

  • rate this

    Comment number 150.

    149 purple Am I being to obtuse?

    I showed how economics works earlier. Those who pay get the economics taught that benefits them.

    Think about the growing disparity - same rules. Buy the end that meets your requirement & you make a huge profit! like Energy 'regulation'. Train & educate the insanity and the system works for you. So much has been totally subsumed by 'fake' philosophy.


  • rate this

    Comment number 149.

    148.purple You want to see the wood from the trees? But can you take it? You can't take it!

    'Wanna' know how the state works read up on the Teapot Dome Scandal of the early 20s.

    The names have changed, the 'system' has moves across the Atlantic - but it is the same!

    Hunt the MONEY. Who pays and who gets it! Then it was Liberty Bonds and 'loans' now it is QE, Free Money & 'too big to fail'!

  • rate this

    Comment number 148.

    It is difficult to know what to call anything, today, since the death of the English language.

    Let's hear it for Minglish. The new jabberwocky that gets nothing done, leaves all parties entirely befuddled and is costing the country a fortune in waste and ruined GDP.

    Her temperature rose.

    Yes, they are lovely flowers. Aren't they.

  • rate this

    Comment number 147.

    Don`t call you Co-op? Oh all right we`ll call you another load of dodgy Bankers then

  • rate this

    Comment number 146.

    As a sign of how little the BBC values HYS this is the only one open on this site today.

    Mutuals (or some variant of them) have to be the way to go - not only in banking, but in the ownership of critical national infrastructure (power, water etc) privatising has been a farce, nationalisation allowed the unions to run riot. Co-operatise them and let's see if that works better!

  • rate this

    Comment number 145.

    I wonder if they will stop the proposed redundancies of up to 500 staff in Derbyshire, Dunfermline & Cheshire now they have had these results?

  • rate this

    Comment number 144.

    UK, a country known as the tax haven of the world. UK, where no large corporates pay tax, and get huge subs from the taxpayers pot. Now these elected puppets decide "Doctors and nurses found guilty of "wilful neglect" of patients could face jail". You elected these MP's into the Royal Bank of Westminster, 5 years on from crash, do you see this in the corrupt financial industry ? Crash2 coming soon

  • rate this

    Comment number 143.

    Americans say if it aint broke don't fix it there was a rush for the mutuals to go PLC question is how many are left still standing after the crash. Yet Nationwide sailed through the storm without a scratch . Says a lot that governments want the capitalist model to succeed again only for in my view to put us through all this again every 20 or 30 years. So still think it works ?

  • rate this

    Comment number 142.

    The banking system was set up to forward the prospects of the founders.
    As such they have profited greatly. Through two world wars and many other debacles. To profit you need to be one of them or at least make sure you pay your dues.
    I cannot see Mutuals being able to do this.

    And in addition they threaten the existence of the founders.


    They will join the ranks of the trodden upon...

  • rate this

    Comment number 141.


    Most rates are market rates - that is the market that is controlled and influenced by the Bank of England. Also remember the BoE's ONLY purpose is to keep the bust banks afloat.

    It is a racket. You are in the hands of the racketeers no matter which bank or building society you use.

    The BoE is totally obsessed with rescuing the bankrupt banks and cares nothing about the little people.

  • rate this

    Comment number 140.

    As a saver for many years in Nationwide,I have to ask where all these profits go,as we savers get nothing from it.Now Nationwide are always keen to point out that they have no share holders to pay out,so why are their interest paid to savers so low?If they cannot raise these then they should lower rates for long term credit card holders/borrowers.

  • rate this

    Comment number 139.

    Just started the switch from Co-op to Nationwide.

  • rate this

    Comment number 138.

    Moody’s is to cut the credit rating of US major banks, including Morgan Stanley, Goldman Sachs, JPMorgan and Bank of New York Mellon.

  • rate this

    Comment number 137.

    136: Thanks. Seems like a small number on the face of it.

  • rate this

    Comment number 136.

    135. The J Hoovers Witnesses
    "Anyone know if any of these institutions, to which J.P. Morgan have to pay damages, are outside the US?"

    Allianz but not (yet) Deutsche Bank, according to the Wall Street Journal.

  • rate this

    Comment number 135.

    Anyone know if any of these institutions, to which J.P. Morgan have to pay damages, are outside the US?

    (Not off topic since it led to where we are now).

  • rate this

    Comment number 134.

    @132 Grounder
    I have enjoyed our discourse.
    Thanks for bearing with me.

  • rate this

    Comment number 133.

    "The LTV, for new mortgages was 69%, and the LTV on its stock of mortgages is 49%: Nationwide is not lending more than homebuyers can afford to repay."

    Affordability isn't linked to LTV

    "Nationwide provided mortgages to 22% of first-time buyers. And some of these were 95% mortgages"

    Says it all. FTB are the ones least able to pay or retain jobs. And 95% is more susceptible to property crashes

  • rate this

    Comment number 132.

    @125 plotinus
    "Presumably assets that are thus 100% discounted can qualify as CET1 assets"

    Ordinarily, a 100% discounted asset is one with an assumed value of zero. This thinking does not apply to risk-weighted assets. However, it is permissible to deduct an asset from capital rather than including its risk-weighted value in RWA, turning a fully discounted asset into negative capital. So, no.


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