Building society warns of ‘challenges to short-term profitability’ but says its financial position is ‘strong and robust’
Nationwide has revealed plans to raise up to £500m of extra capital, prompting speculation that it may go shopping for acquisitions. However, Britain’s biggest building society also admitted it had doubled its provisions relating to problem commercial property loans to £493m, and warned that these “continue to pose challenges to our short-term profitability”.
Announcing a 56% leap in annual underlying profits, Graham Beale, Nationwide’s chief executive, said the society’s financial position remained “strong and robust,” and that it did not need to raise additional capital to meet regulatory demands – but wanted to do so for strategic reasons.
“We do think it’s important that we’ve got access to capital from a strategic viewpoint, either to respond to some shock to our system, or for some inorganic opportunity, or an accelerated growth plan,” Beale told reporters during a conference call. Nationwide would look to raise between £300m and £500m from the debt issue.
Chris Rhodes, Nationwide’s group retail director, said later that the society would look to make its move “probably sooner rather than later”, adding: “We don’t need to raise it at the moment, but we need to prove we can raise it.”
Nationwide took over three other building societies during 2008-09, and has already outlined plans to begin lending to small and medium-sized enterprises in 2014.
Its underlying profit for the year jumped to £475m – up from £304m in 2012. The society revealed it had increased its gross mortgage lending to £21.5bn during the year to 4 April, and saw its share of the home loans market rise from 13% to a new high of 15.1%. It said that during the year it helped more than 42,000 people to take their first steps into home ownership – a 75% increase on last year’s figure of 24,000.
“One in every three of our new prime mortgages during the year was to a first-time buyer, and we accounted for almost one in five of all first-time buyer mortgages in the UK,” said Beale.
Nationwide has been setting out its stall as one of the leading challengers to the big five high street banks, and opened 365,000 new current accounts during the period. That means the society now has 5.2 million current account holders, nudging up its share of the “main” bank account market from 5.1% to 5.7%.
Nationwide’s retail credit quality remained high, with arrears well below average, but it was continuing to experience problems with some of its “legacy” commercial real estate assets. Rhodes said this reflected the economic environment, with tenants going into insolvency and commercial property prices having plunged more than 40% since their peak. As a result, the charge for problem property loans has been increased to £493m – up from £247m in 2012.