Nationwide Complains To FSA About Govt Bully

This news article may have slipped under most peoples radar, however I felt compelled to comment.

Nationwide Complains To Regulators Over State Backed Savings

Chris Rhodes, head of products and marketing at Nationwide, said they have complained to the regulatory authorities about high savings rates being offered by taxpayer-backed institutions as it revealed its consumers had withdrawn £5.6bn of deposits in the first half of the year.

Britain’s biggest building society accused government-backed institutions of distorting the savings market by pricing their products “uneconomically.” ( In other words-they are selling ‘em better rates to cut out the competition.) Nationwide also attacked regulatory changes being implemented by Brussels, which it warned could impede the mutual sector as it revealed profits in the half-year to 30 September had fallen by 64%.

Underlying pre-tax profits were £117m, down from £322m the same time a year ago, while statutory profit was £142m if gains made from the takeover of Dunfermline Building Society were included. The society also admitted that its promise in 2001 that its rate for borrowers coming off fixed and tracker mortgages would never be more than 200 basis points above the Bank of England’s base rate was costing more than £450m a year.

Other lenders were typically charging mortgage rates 1.5% higher than this, the society said. Nationwide’s chief executive, Graham Beale, was cautious about the outlook for this year and next, warning about the impact of rising unemployment. “The growth in house prices over recent months appears to be driven by lack of supply, and growth in unemployment throughout 2010 will inevitably exert downward pressure on house prices,” he said.

( Hooray! Some sense at last.) Add to this the fact that at some point the interest rates will rise, which will force some more repossessions back on to the market, and we still have a distinct lack of affordable products.

Alliance & Leicester

Chris Rhodes, a former Alliance & Leicester director who now heads products and marketing at Nationwide, said that the society had contacted the Treasury and the Financial Services Authority about savings rates being offered by the state-owned National Savings & Investments (NS&I) as well as some parts of the Lloyds Banking Group, which owns the UK’s biggest savings institution, Halifax. Rhodes said these were causing “dislocations” in the savings market, which also affected the society’s ability to offer home loans. In the first six months of the year, more customers repaid their loans than took out new mortgages at Nationwide.

Its mortgage balance shrank by £1.7bn. The society also had to turn to the wholesale market for 30% of its funding (the rest being savings) from 28% previously. John Prout, NS&I’s head of sales, stressed that it had a target to keep its overall savings book neutral for the year, plus or minus £2bn. ( eh?)

Concern

“Our targets are very clear and very transparent,” he said. Lloyds said it was aiming to build “deep and enduring customer relationships” rather than chasing market share. Beale also hit out at changes to regulations aimed at forcing banks to build up more capital. “Whilst we welcome many of the proposals and will fully support the objective of creating a more secure framework for banking regulation, 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,” he said.

“It is critical that the fundamental changes being contemplated in relation to capital adequacy do not result in restricted access to capital markets for building societies,” said Beale. He is concerned about the Financial Services Authority rigidly imposing European Union rules on capital. As Nationwide does not have a stock market listing, it is at a disadvantage compared with banks, which have shares that they can use to bolster their so-called core tier one capital ratio.

Nationwide can only use retained earnings, which again impedes its ability to lend. Beale is also lobbying for changes to the funding of the Financial Services Compensation Scheme, which pays out when banks and societies collapse, to reduce the amount paid in by societies. The impairment charge for bad loans leapt to £317m, although Nationwide said the arrears levels of 0.66% were stable at just over a quarter of the industry average of 2.40%. The charge included a jump in losses on commercial property loans, which leapt to £180m from £25m “reflecting recessionary conditions and significant decline in property values”.

Commercial property prices fell 40% to 1997 level

Beale said: “Our performance has been substantially affected by the low interest rate environment and the dramatic fall in commercial property valuations, which have led to compression in our margin and a sustained higher level of impairments in line with our experience during the second half of last year.”

Our Comment

So should we really be surprised that the government who we all know are strapped for cash, should be using practices that make sure their ‘share’ of the mortgage and savings market remains the lions share. Does this behavior comply with fair competition rules? Mr Beale thinks not or he would not have felt so strongly as to have made an official complaint. These bully boy tactics will continue to keep the recession going even longer. Should we really be surprised that the government is doing the exact opposite of what it says? hmmm.

We have added comments to the original article. This article appeared at http://www.pjnews.org/?p=2857

My Property Mentor

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