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Nationwide’s profits hit amid state bank distortion

Nationwide has warned that Government-backed institutions are “seriously distorting” the savings market.

Speaking after the society’s profits for the first half of this year slumped to £143m, down by 62 per cent from £374m in the first six months of 2008, chairman Graham Beale hit out at the “uneconomic pricing” of Government-backed banks.

Beale says the pricing strat- egies of Northern Rock and Lloyds Banking Group are inconsistent with the Government’s pledge to help the mutual sector. He singled out National Savings & Investments, which recently withdrew its market-leading one-year bond offering 3.95 per cent due to huge demand, saying NS&I is “way outside the competitive spectrum”.

Nationwide’s retail fund- ing balances fell by £5.6bn to £122.7bn, reflecting what it says is “intense competition and uneconomic pricing within a distorted competitive landscape for retail savings”.

Beale criticised the recent proposals from the tripartite for the banking sector. He says: “We remain concerned that some of the changes could undermine the future of the building society sector which the Government has said it wants to protect.

“We continue to lobby the tripartite authorities to review the way in which Financial Services Compensation Scheme levies are allocated across the industry to ensure low-risk organisations like Nationwide are not unfairly disadvantaged by the basis of allocation which does not recognise the level of risk that individual organ- isations pose to the system.”

Nationwide estimates it held a 8.3 per cent share of the gross residential mortgage market, writing new business with an average loan to value of 63 per cent. It is the third-biggest mortgage provider in the UK and second-biggest savings pro- vider but net residential lend- ing was negative at -£1.7bn.

Three-month arrears rose slightly from 0.64 per cent to 0.66 per cent but impairments on its loan book eased from £320m in April to £317m in September.

Nationwide says performance of assets acquired in the mergers with Cheshire, Derbyshire and Dunfermline societies has been satisfactory and anticipated losses are in line with allowances made at acquisition.

Beale says: “We expect the remainder of this year and next to present a very difficult trading environment. 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.”

Nationwide expressed caution on the rise in house prices, reported by its own index. It says the rise appears to be driven by lack of supply but growth in unemployment through 2010 will exert downward pressure on prices.

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