Nationwide profits down but uncomplicated model survives

Comment Martin Flanagan

Nationwide missed most of the bullets that was the shootout at the OK Corral of the financial crash. US sub-prime lending, geekily lethal structured investment vehicles (SIVS) and collateralised debt obligations (CDOS) were not quite its bag.

Ten years on from the paralysis of capital markets and the collapse of Northern Rock, its building society peer, Nationwide continues to plough a Goldilocks furrow: not too hot, not too cold.

Its latest quarterly results show an 18 per cent profits fall to £301 million, and it has rowed back on one of its core mortgage markets, buy-to-let, as the stamp duty rise on the latter is cramping that sub-sector’s style.

But overall, in a slowing economy, Nationwide continues to steer a steady path, not rattled by the challenger banks and fintech merchants out there or lower-for-longer interest rates into taking excessive risk.

The group’s safety first, mutually-owned reputation is attracting customers – 202,000 in the latest period, with more than one in five of all current account switchers choosing Nationwide. Deposits are well up, even with the niggardly rates it, along with the rest of the banking high street, is paying on them.

The group’s main potential weakness is that, like Lloyds Banking Group, it is virtually a complete play on the UK, without investment banking or overseas operations to leaven the picture if the UK economy gets into trouble. However, so far, so good; that economy is only decelerating in growth, few are predicting a UK recession. Nationwide’s bad debt picture is pretty healthy, its capital buffers strong. The group should be able to jog along comfortably as things stand.