National customers can enjoy a £385 million windfall after a bumper year

Thursday, May 23, 2024 7:36 am

Nationwide to acquire Virgin Money for £2.9 billion

Nationwide plans to transfer around £385 million directly into customers’ accounts as Britain’s biggest building company continues to enjoy huge profits thanks to higher interest rates.

The lender, which has more than 16 million members, said on Thursday its board had approved a £100 “Fairer Share” payment to be made next month to 3.85 million eligible customers with a savings account or mortgage.

The move came as Nationwide reported pre-tax profits of £1.78 billion for the year ended April 4. Although this figure was 20 percent lower than the all-time high of £2.23 billion the year before, it was still high compared to a profit of £1.6 billion in 2022 – which was a record in itself at the time.

Nationwide said this year’s profit decline was mainly driven by passing on better interest rates to savers and delivering value to its members.

While publicly traded banks distribute excess capital to their shareholders through dividends and buybacks, mutually owned mutual funds usually do this by reinvesting in the company or offering their members better rates on savings and loans.

Nationwide said it had delivered a “financial benefit to members”, reflecting the additional interest it pays over the market average, worth £1.85 billion to its members over the period – up from £ 1.05 billion the year before. Last June’s “Fairer Share” payment saw £344 million awarded to around 3.4 million eligible members.

The building society, like its peers and the big banks, has seen a boost in lending income from higher interest rates since the Bank of England started raising funding costs in December 2021.

Nationwide’s net interest income – the difference between what a lender earns on loans and pays out on deposits – came in at £4.45 billion for the 12 months, £48 million less than the previous year. The net interest margin remained largely stable at 1.56 percent, compared to 1.57 percent the year before.

Strong revenue from higher interest rates has been largely offset by fierce competition in the mortgage market as lenders compete for customers. Nationwide’s gross mortgage lending has fallen 22 percent from £33.6 billion to £26.3 billion in the past 12 months.

With the housing market weak and the central bank set to cut interest rates this summer, lenders are facing tight margins as they come under pressure to offer customers better deals.

Nationwide said that while it expected mortgage activity was likely to “remain subdued in the near term as affordability pressures persist,” it would decline over time if income growth remains solid and mortgage rates remain subdued.

Meanwhile, Nationwide’s member deposits rose by £6.1 billion to £193.4 billion. The lender received a boost late last year after attracting more than 163,000 customers with a market-leading £200 switching bonus, including an eight per cent savings account.

The lender announced on Thursday that it would launch a new £200 current account switching offer on March 31 for existing members who do not currently use Nationwide for their day-to-day banking.

Nationwide has also unveiled a ‘highly competitive’ bond exclusively for members, offering 5.5 per cent interest for 18 months.

Chief executive Debbie Crosbie commented: “We have delivered our highest ever member value and our strong financial performance means we can expand the ways in which members can benefit from our success.”

“We offer our members and customers high quality products, choice in the way they bank with us and simply brilliant service,” she continued. “We have ranked first in customer satisfaction among our peer group for 12 years in a row and have continued to grow our deposit and mortgage balances.”

The news comes as Nationwide is completing what will be Britain’s biggest banking merger since the financial crisis.

In March, the lender stunned the city when it used its deep pockets to make a £2.9 billion bid for Virgin Money, Britain’s sixth largest major bank, which was approved by Virgin shareholders on Wednesday Money.

The mid-market banking sector is seeing increased merger and acquisition activity as lenders like Nationwide, which have been flush with cash of late, rush into smaller rivals struggling with cost pressures and a lack of scale compared to the biggest banks.

Nationwide’s deal with Virgin Money will mark its entry into the riskier business banking market as the company looks to scale and diversify away from interest rate sensitive savings and mortgages.

The transaction is expected to close in the fourth quarter of this year, following regulatory approval. Nationwide said on Thursday it could make a profit of as much as £1.5 billion from the takeover, but final figures could vary.

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