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Nationwide looks to fill £1.5bn capital shortfall

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Nationwide Building Society is planning to launch a £500m bond over the next few weeks in an attempt to help repair a £1.5bn hole in its balance sheet. 

According to the Sunday Times, the Bank of England last week accelerated the move to require banks to hold a 3 per cent leverage ratio. This means Nationwide must now find a way to raise an additional £1.5bn of capital. The paper says it has been given until the end of the month to devise a solution. 

It adds the building society plans to follow the first bond issue with a second round worth between £500m and £1bn later in the summer. 

Nationwide chief executive Graham Beale told the Sunday Times the rule change is “crude” and “an unsophisticated measure which ignores the quality of an organisation’s assets”.

Last week, the Prudential Regulation Authority published a report which revealed there was a £27bn shortfall in the capital requirements of five banks, including Nationwide, at the end of 2012.

The Co-operative Bank announced the terms of a rescue deal to plug a £1.5bn capital shortfall on its balance sheet last week, which will affect bondholders, institutional investors and Co-op Bank’s parent company the Co-op Group.

Bondholders, including those with perpetual subordinated bonds, invested in the Co-op expecting a coupon of between 5.5 per cent and 13 per cent a year. The rescue deal means bondholders will no longer receive these interest payments, and instead will be offered a combination of unsecured bonds issued by the Co-op Group and shares which will give them a “significant minority stake” in the bank.

The so-called “exchange offer” is likely to be launched in October.

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  1. Oopsie Dupsie, another Bradford and Bingley in the making ? How can a ‘mutual’ get into this mess ?

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