Nationwide’s profits slide 69 per cent

Pre-tax profits at the Nationwide slumped by 69 per cent to £212m for the financial year ending in April. The fall prompted the building society to brand as "unfair" the £241m it had to pay into the Financial Services Compensation Scheme.

The scheme was set up to guarantee individual savers sums up to £50,000 but the society attacked it, with chief executive Graham Beale saying: "We regard the fact that the FSCS charge is not linked to the level of risk posed to the financial system by individual institutions, but instead is allocated by share of the retail savings market, as illogical and unfair, producing a disproportionate outcome for the low risk retail funded institutions, particularly building societies."

He said profits were 53 per cent lower than they would otherwise have been because of the charge.

The FSCS payment was not the only problem the Nationwide faced in the period. Low interest rates meant poor returns from its mortgage customers and increasing bad debts also affected its earnings, with provision for bad debts jumping from £106m to £394m.

It was also hit by extra costs linked to the takeover of the Portman, Cheshire and Derbyshire building societies.

However Beale emphasised the society's stability in difficult times, saying it was the only major banking institution not to have to raise capital on the markets or go to the government for more funds.

He also underlined the fact that just 0.6 per cent of its mortgage customers are more than three months in arrears with their payments, compared to an industry figure of over two per cent.

WHAT THEY ARE SAYING:Management Today: "Nationwide seems to have done a pretty decent job of surviving the turmoil intact – which CEO Graham Beale reckons is down to its 'naturally high capital and prudent lending practices'. Compare and contrast this with Abbey, Alliance & Leicester, and Bradford & Bingley: all three are set to disappear from the high street altogether, after new owner Santander announced today that it would re-brand them under its own banner. So why should the likes of Nationwide be punished for their relatively cautious approach?"

Izabella Kaminska, Financial Times: "What strikes us about the statement is that a low interest rate environment should not necessarily be bad for mortgage lenders... however... one of Nationwide's biggest exposures... is to existing customers coming off fixed rate products and onto the bank's variable, due to its own contractual small-print which promises the rate can never be more than 200bps over the base." ·