Nationwide beats off Co-op Bank claims with a surge in its profits

Building society sees leap in business and rejects view it is not a ‘serious competitor’

Britain’s biggest building society yesterday sought to put clear blue water between it and the Co-op Bank, reporting more than double last year’s profits and surging new business.

The chief executive, Graham Beale, refuted the claim of former Co-op boss, Peter Marks, that it would be “difficult going forwards for a mutual to be a really serious competitor in the retail banking market” in the wake of the Co-op’s banking troubles.

“We are making tangible progress in growing our market shares and continue to demonstrate that we offer a real, consistent and viable alternative to the UK banks. We are a ‘really serious competitor’,” Mr Beale said.

He continued: “The Co-op Bank has just reported a loss of £700m. We are reporting profits to £332m, which is two and a half times what we made a year ago. Unlike many of the banks we have remained profitable, not just over the past 18 months, but throughout the financial crisis.”

After one-offs and accounting issues, headline pre-tax profits were more pedestrian at £270m, but that compares with £103m a year earlier. Underlying income grew 25 per cent to £1.4bn.

Nationwide attracted £5.4bn of new savings balances, broadly matching the £5.6bn surge in mortgage lending. It further reported a 53 per cent increase in lending to first-time buyers, and secured a 15 per cent share of the mortgage market, against its share of stock or “natural” market share of 10 per cent.

Chris Rhodes, the finance director, said the society remained confident that its borrowers can cope with rising interest rates, amid predictions that they may now start to move up next year as Britain’s recovery picks up pace.

“We test mortgage affordability on the assumption that there will be rate rises in the future. We call that a stressed rate. We are confident our borrowers can cope,” he said. Loans three months in arrears are at 0.7 per cent of the book, compared with an industry average of 1.75 per cent. Repossessions at around 400 compares with a total book of 1.5 million.

On the downside, however, Nationwide’s commercial property lending, a bugbear that has been responsible for much of Co-op’s problems, continues to struggle. Loan impairments grew 17 per cent to £225m. The society said that after adjustments the performance was “stabilising” but this represented “only a first step towards a recovery in valuations over the medium term”.

The society said it was “on track” to meet a plan agreed with the Bank of England designed to boost its capital strength. It is likely to issue “core capital deferred shares”, a type of bond which won’t pay interest if the bank hits turbulence, over the coming months as a means of raising more.

Regulators are understood to have a starkly different view of the bank and its management than they had of Co-op before its recent travails resulted in a shake-up and a clear-out.

Mr Beale said the recovery in the housing market, which began in London, was now visible across most of the country.