The message from the UK’s second-biggest mortgage lender Nationwide on Monday morning – “It’s just not fair!”
Why should the mutual lender, posting an 18 per cent drop in underlying H1 profits to £322m vs £394m, generally demonstrating its prudence scrupulousness, be obliged to contribute to the UK Financial Services Compensation Scheme, the fund used to insure the depositors of all those unscrupulous banks that might collapse.
From the statement:
Following the transfer of Bradford & Bingley’s savings business to Abbey and the nationalisation of the Icelandic banking industry, we will be required to bear our proportion of the cost of the levy due to the Financial Services Compensation Scheme, necessary to absorb losses relating to these institutions. Whilst we believe this levy can be absorbed within our income statement, as a prudently run organisation it is highly regrettable that the cost of failure of banks who took on substantially greater levels of risk than we are prepared to should be borne by Nationwide’s members. The Society recognises the importance of depositor protection in maintaining investor confidence and thereby promoting financial stability, but we will be lobbying the Tripartite authorities to review the way in which FSCS levies are allocated across the industry to ensure that low risk organisations such as Nationwide are not unfairly disadvantaged by a basis of allocation which does not recognise the level of risk which individual institutions pose to the system.
So according to Nationwide, the worst run banks – those most reliant on short-term funding and with the highest loan-to-value ratios on their mortgage portfolios – should mostly be putting up the cash for depositor insurance.
Not that Nationwide hasn’t asked to benefit from the same measures other banks are leaning on. The group was included in the five institutions listed as likely to take advantage of the £400bn on offer via the Treasury’s October 8th rescue plan. Nationwide’s view on the government guarantee:
The Group will continue to make use of secured funding into the second half of the year and will also consider using the UK government guarantee for debt issuance. As opportunities arise we will look to increase our ratio of long term to short term wholesale funding.
But lenders and depositors should not misunderstand. Nationwide remains as frugal as ever, it’s just taking advantage of the opportunities arising:
…the Society has always adopted a prudent and responsible approach to its business, recognising the possibility of a more adverse economic environment. As a result we are well positioned with a strong balance sheet that will enable us to support our members during difficult times and take advantage of opportunities that may arise.
Plus its treasury portfolio has no exposure to emerging markets or hedge funds – and only a minimal one to non-investment grade debt (no details given).
As for the valuation knocks it has taken this half-year (like the £416m it’s lost on its treasury investment portfolio since April), those assets are performing in line with expectations and will eventually recover full value on maturity. Not to worry then.
Related links:
UK banks thrown £400bn lifeline – FT.com
The £400,000,000,000 rescue plan – FT.com