Nationwide profits plunge by 63%

Published on Friday 20 November 2009 21:20

NATIONWIDE Building Society has suffered a sharp fall in first-half profits as it felt the squeeze from low interest rates and the "dramatic fall" in commercial property valuations.

Results released yesterday show that the mutual's underlying profits, after stripping out one-off gains and losses, slid to 117 million in the six months to 30 September – 63 per cent below the 322m haul a year earlier.

Chief executive Graham Beale said Nationwide's margins had been hit while impairment charges remained high during the period. Those bad debt provisions totalled 317m, compared with 74m in the same period last year and 320m in the six months to April 2009.

Bottom-line profit before tax plunged to 143m from 374m a year earlier. That was despite a 40m gain from the takeover of the social housing loan book of rescued rival Dunfermline.

Nationwide stepped in to save the bulk of Dunfermline's business in March with the help of a 1.6 billion taxpayer injection.

But the social housing book was taken on by the Bank of England in a so-called bridge bank. That was subsequently put out to tender and snapped up by Nationwide at the end of June.

Yesterday's interim report outlined a number of factors affecting the reported profit, including an exceptional 40m gain relating to the social housing portfolio.

The figure equates to the difference between the purchase price on acquisition and the "observable" market price of the portfolio. Other factors impacting the bottom-line profit figure included movements in the value of derivatives.

A spokesman for the society described the 40m figure as an "accounting gain" and confirmed that the "limited" integration of the Dunfermline operation was on track.

Nationwide – Britain's biggest building society – predicted the declines in the commercial property market had reached their bottom and said related losses in the second half would be no worse and "may even be better" than the first six months of the financial year.

Bad debt charges on commercial property loans rose to 180m, from 146m in the previous six months and 25m in the same period last year.

Beale said the overall impairment charges were in line with expectations and highlighted the firm's ability to remain profitable.

But he warned: "Economic recovery is forecast to be slow and we expect interest rates to remain at their current level until at least the fourth quarter of 2010."

Finance director Mark Rennison said investor appetite for commercial property was returning. "The next couple of quarters will be very important in determining where we go from here, but all recent evidence shows prices are no longer falling and investor appetite is starting to pick up."