Fitch lowers Nationwide’s outlook to negative
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Fitch Ratings has changed Nationwide Building Society’s outlook to negative from stable.
Fitch says the negative outlook on Nationwide’s Long-term IDR reflects Fitch’s concerns that pressure on operating profit may intensify, throwing into relief the more limited financial flexibility inherent in a building society.
Andrea Jaehne, director at Fitch’s Financial Institutions team says: “Fitch believes the society’s asset quality is likely to show modest signs of weakening from its robust position given the agency’s moderate economic outlook for the UK - Nationwide’s main operating market.”
The ratings also consider Nationwide’s size and good franchise which support its ample funding position, while recognising the society’s lack of geographical and business diversification. In the financial year to April 2009, Nationwide’s operating profitability suffered from larger funding and liquidity costs as a result of fierce competition in the retail deposit market and difficult capital market conditions.
Fitch says new mortgage business volumes have remained low, which prevents the society from re-pricing its assets as quickly as its liabilities. In addition, operating profits were depressed by a sharp increase in loan impairment charges, mainly related to deterioration in the society’s commercial property loan book, and the large three year charge for the Financial Services Compensation Scheme.
Fitch expects the society’s operating profitability to be positive but subdued for 2010 and 2011. The agency thus considers that Nationwide’s financial flexibility to absorb potential charges is somewhat limited compared with its ‘AA-’ peers, especially given its restricted ability to raise capital by virtue of its mutual status.
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Readers' comments (4)
Anonymous | 30 Oct 2009 2:54 pm
How interesting that Fitch has down graded one of the few large lending institutions that did not need bailing out by the the UK Government and then refers to the need for a provision to the FSCS which is a direct result of the failure of those banks that Fitchs had so highly rated prior to the Credit Crunch. Interesting that the FSCS hits deposit raisers like Buidling Societies harder than the banks.
Perhaps Fitchs are welded to the concept that mutuality is bad but that bad banks are good?
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Anon also | 30 Oct 2009 4:53 pm
Mr Anonymous, couldn't agree more with your sentiments...
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Paul Barber | 30 Oct 2009 4:56 pm
I believe NW are also selling off some of their mortgage book as well so this news is not really come at a good time.
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Tony Yorke | 30 Oct 2009 5:15 pm
Fitch seem to be attempting to reclaim some lost ground after landing themselves in an almighty mess earlier in the year.
Thankfully NW are big enough to withstand Fitch's criticism.
My concern is for the medium-sized and smaller building societies.
Their businesses - particularly the treasury teams who are trying to bring in short and long term finance from local authorities, etc - are likely to get caught up in the ripples of this latest negative rating.
That's where the real fall-out is likely to be.
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