Million members building society nationwide - Investor Update - Nationwide Building Society
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million
members
building society
nationwide
Investor Update
February 2019
1
Our strategy: building society, nationwide
UK’s most trusted financial brand3
Creating up to 1000 roles as part of our
technology investment Four community boards have supported
34 local housing projects
One of the first businesses to sign the Race at
Work Charter
Attracted 1 in 5 current account switchers
No. 1 for customer satisfaction amongst high
and 2 in 3 new ISA deposits4
street peer group1
Helped a record 40.5k first-time buyers
Joint 5th in UK Customer Service Index2
Member financial benefit of £330m
Which? Banking Brand of the Year 2018
UK leverage ratio of 5.0%
£1.3bn additional technology investment in the future of the Society
On track to deliver £100m of sustainable saves in 2018/19
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018)
1 © GfK 2018, Financial Research Survey (FRS) measure; 2 Institute of Customer Service UK Customer Satisfaction Index; 3 compiled by Independent Research Agency, 12 months ending 31 December
2018 vs 12 months ended 31 March 2018. Financial brands included Nationwide, Barclays, Co-operative Bank, First Direct, Halifax, HSBC, Lloyds, NatWest, Santander and TSB); 4 Sources: CASS BACS
Payments Schemes monthly CASS switching market data (Apr-Sep 2018) and Bank of England (Apr-Sep 2018)
2
Our mutual model sets us apart from our competitors
Nationwide is the largest building society in the UK Key requirements of the Building Societies Act:
with over 15m members; our members are our retail
savings, residential mortgage and current account
customers1 One member;
Member Owned
One vote
In addition to being regulated by the PRA and FCA,
Nationwide is subject to the Building Societies Act
Residential
1986 Assets
mortgages ≥75%
Nationwide does not have shareholders, so aims to
make sufficient profits to run a safe and sustainable Retail deposits
Liabilities
business and invest in services for members ≥50%
Mutual structure does not allow for a holding No proprietary Hedging to match
company – Nationwide is, and will continue to be, run trading risk
as an operating company
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018)
1 Holders of CCDS, deferred shares, PIBS, and AT1 instruments issued by the Society are also members
3
Strong trading performance in a competitive market
Continued current account growth Strong prime mortgage lending
617 588
570 22.5 23.4
21.6
9m 31/12/16 9m 31/12/17 9m 31/12/18 9m 31/12/16 9m 31/12/17 9m 31/12/18
Current Account Openings (‘000)1,2 Prime Mortgage Gross Lending (£m)1
Number 1 for current account switchers Maintaining market share of deposits
31,773
10.1 10.0 10.1
16,430
7,483 5,363
2,116 586
Nationwide HSBC San UK Monzo Starling Tesco 04/04/17 04/04/18 31/12/18
Bank
Current Account Switching Net Gains2 Market Share of Retail Deposits (%)1,4
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018)
1 Nationwide Building Society’s Interim Management Statement, Q3 2018/19; 2 Nationwide Building Society’s Interim Management Statement, Q3 2017/18; 3 Current Account Switch Service Dashboard,
Issue 21 quarterly participant data, Q3 2018; 4 Nationwide Building Society’s Preliminary Results, 2017/18
4
Profits in line with expectations as we invest in
technology
Underlying profit for the period has reduced,
principally due to a charge of £167 million1
9 months to 31 9 months to 31 driven by asset write-offs and additional
December December investment in technology
2017 20181
Underlying profit Costs are flat period on period, excluding asset
880 691 write-offs and our additional technology
(£m)
investment. On track to deliver £100 million of
Statutory profit sustainable saves within the 2018/19 year
886 703
(£m)
Net interest margin was 7 basis points lower
Cost income ratio
59.7 68.4 year on year1. Expect margins to continue to
(%)
moderate as consumers benefit from
Net interest margin considerable choice
1.33 1.26
(%)
Announced £330m of member financial benefit
at the half year (H1 2017/18: £245m), by offering
our members better rates, fees and incentives
than the market average
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018)
1 Nationwide Building Society’s Interim Management Statement, Q3 2018/19
5
Maintaining a low risk balance sheet
04 Apr 18 05 Apr 184 30 Sep 18 %
IAS39, £bn IFRS9, £bn £bn share
Balance sheet growth driven by £3.6bn net
mortgage lending and increase in liquidity
Residential due to strong retail deposit performance
177.2 177.1 180.7 76
mortgages Capital position has strengthened with CET1
Other lending 14.5 14.4 14.3 6 and UK leverage ratios increasing to 31.7%
and 5.0%, respectively
Liquidity1 30.8 30.8 36.0 15 Day one impact of IFRS9 is limited:
Other assets 6.6 6.6 7.3 3 provisions increased by £162m, CET1 ratio
reduced by 10 bps
Assets 229.1 228.9 238.3 100
Retail deposits2 148.4 148.4 153.5 65 05 Apr 30 Sep 31 Dec
Key ratios (%)
184 18 185
Wholesale
58.8 58.8 62.1 26 Liquidity coverage
funding 130.3 131.9 152.5
ratio
Other liabilities 3.7 3.7 3.2 1 Wholesale funding
28.2 28.6 28.8
ratio
Capital &
18.2 18.0 19.5 8 CET1 ratio 30.4 31.7 31.7
reserves3
Liabilities 229.1 228.9 238.3 100 UK leverage ratio 4.9 5.0 5.0
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018)
1Treasury liquidity and investment portfolio (on balance sheet); 2 Shares (member deposits) and amounts due to customers on consolidated balance sheet; 3 Total members’ interests and equity
including CCDS, AT1 and subordinated liabilities; 4 Comparison shown vs 5 April to reflect the impact of IFRS9; 5 Nationwide Building Society’s Interim Management Statement, Q3 2018/19
6
Continued strong asset performance
Residential Unsecured
Retail lending
05 Apr 18 30 Sep 18 05 Apr 18 30 Sep 18
Total balances (£m) 177,303 180,967 4,107 4,316
Provision balances (£m) 235 234 365 371
3 month+ arrears (%) 0.43 0.42 1.56 1.53
UKF industry average (%) 0.81 0.78
Total negative equity balances (£m) 261 236
Negative equity (£m) 38 34
The proportion of loans in arrears across
3.00% Mortgage balances in 3 month+ arrears1
prime and specialist lending remains low,
2.50% reflecting the favourable economic conditions
2.00% and low interest rate environment, supported
by robust credit management policies
1.50%
Nationwide’s mortgage book has a 3m+
1.00% arrears value consistently below the UK
0.50% Finance Industry average since at least 2005
On the 31st December, arrears performance
0.00%
for residential mortgages was stable at
0.43%, with an average LTV of loan stock of
57% (4 April 2018: 56%)2
Nationwide UKF industry average
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018)
1 Nationwide Building Society Preliminary Results disclosures 2005-2018 2 Nationwide Building Society’s Interim Management Statement, Q3 2018/19
7In excess of expected capital and MREL requirements
Going concern capital (% of RWAs) 1 MREL (£bn)
34.7%
AT1 £18.8bn
27.9% £16.8bn
5
SNP
Buffers
Buffers
Tier 2
CET1 13.1% 6.5% UK
Minimum
leverage
leverage Buffers
requirement Tier 1 exposure
Pillar 2A
Pillar 1
End point Tier 1 UK leverage 2 CET1 requirement 3 Current resources 2020 expected
capital resources requirement requirements 2, 4
Unless otherwise stated, information in this presentation is correct as per Interim Management Statement (31 December 2018).
1 Requirements, including buffers which are expected to apply in 2019; 2 Leverage buffers comprise: 3.25% minimum, 0.35% additional leverage ratio buffer and 0.4% countercyclical leverage ratio
buffer; 3 CRD IV buffers comprise: 1% countercyclical capital buffer; 1% systemic buffer; and 2.5% capital conservation buffer; 4 Assuming UK leverage exposure as at December 2018; 5 Senior non-
preferred notes
8Continue to be active in wholesale funding markets
Wholesale funding portfolio (£bn) Maintained wholesale funding market presence,
issuing c.£2.2bn term funding in H1 2018/19
Other 0.7
across secured and unsecured programmes, in
Securitisations
3.4 both private and public transactions
Medium Term Since 30 September 2018, Nationwide has been
Notes 9.1 Term Funding active in secured and unsecured private
Scheme
17.0
placements. Nationwide issued £1bn of its
inaugural SONIA 5yr covered bond in January
2019
Given Nationwide’s participation in the Term
Funding Scheme, wholesale funding
requirements have been reduced over the
2018/19 financial year
1
Short Term 15.5 Typically, Nationwide would issue £7-10bn term
funding per annum across secured and
Covered Bond unsecured asset classes – this is the expectation
16.4 for 2019/20 onwards
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018).
1 Includes commercial paper, certificates of deposit, repos and deposits (of which include protected equity bond balances of £0.2bn).
9Credit ratings reflect capital strength and conservative
business model
Nationwide’s long-term and short-term credit ratings are shown in the table below. The long-term rating for
both Moody’s and Standard & Poor’s is the senior preferred rating. The long-term rating for Fitch is the senior
non-preferred rating.
Senior Senior Non
Short term Tier 2 AT1 Outlook
Preferred Preferred
Moody's Aa3 P-1 Baa1 Baa1 - Negative
Standard & Poor's A A-1 BBB+ BBB BB+ Positive
Fitch Ratings A+ F1 A A- BB+ Stable
Latest ratings actions:
Moody’s (Oct 2018): Affirmed Nationwide’s long and short term ratings, but changed its outlook to negative from
stable. This change in outlook reflects uncertainties embedded in Moody’s forward looking view on the loss given
failure of the Society’s senior debt
Standard & Poor’s (Nov 2018): Affirmed Nationwide’s long and short term ratings and left the positive outlook
unchanged
Fitch (Dec 2018): Affirmed Nationwide’s long and short term ratings and left the stable outlook unchanged
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018)
10Strong performance in the 2018
Bank of England Stress Test1
The 2018 Annual Cyclical Scenario stress test was the
same as the 2017 scenario, but was conducted under
IFRS9. The scenario included: Projected low-point CET1 capital ratios in the stress
UK GDP falling by 4.7% scenario (%)
14.1
UK unemployment rising to 9.5% Low-point CET1
Hurdle Rate
UK residential property prices falling by 33% 11.4 11.0 10.9
Bank Rate rising to 4% 9.7
Nationwide remained profitable throughout the
stressed period; full distributions continued to be
made on all Tier 1 capital instruments
Low point CET1 ratio of 14.1%, 620bps above the
hurdle rate; low point UK leverage ratio of 5.1% Nationwide LBG Barclays San UK RBS
The FPC stated the 2018 stress test was sufficiently
severe to encompass the outcomes based on ‘worst
case’ assumptions about the challenges the UK
economy could face in the event of a cliff-edge Brexit
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018)
1 Bank of England, Stress testing the UK banking system 2018 results, November 2018
11UK Economy – Housing Market
Annual house price growth stagnates in January1
“Annual house price growth almost ground to a complete halt in January, with prices just 0.1% higher than the same time last year. This follows a
subdued December when price growth slowed to 0.5%.
Indicators of housing market activity, such as the number of property transactions and the number of mortgages approved for house purchase, have
remained broadly stable in recent months, but forward-looking indicators had suggested some softening was likely.
In particular, measures of consumer confidence weakened in December and surveyors reported a further fall in new buyer enquiries towards the end
of 2018. While the number of properties coming onto the market also slowed, this doesn’t appear to have been enough to prevent a modest shift in
the balance of demand and supply in favour of buyers in recent months.
It is likely that the recent slowdown is attributable to the impact of the uncertain economic outlook on buyer sentiment, given that it has occurred
against a backdrop of solid employment growth, stronger wage growth and continued low borrowing costs.
Near term prospects will be heavily dependent on how quickly this uncertainty lifts, but ultimately the outlook for the housing market and house
prices will be determined by the performance of the wider economy – especially the labour market.
The economic outlook remains unusually uncertain. However, if the economy continues to grow at a modest pace, with the unemployment rate and
borrowing costs remaining close to current levels, we would expect UK house prices to rise at a low single-digit pace in 2019.”
Average UK house price Average percentage change in UK
house prices
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018)
1 Nationwide’s House Price Index, January 2019
12Contacts
Alex Wall
Head of Investor Relations, Rating Agencies & Capital
alexander.wall@nationwide.co.uk
0845 602 9053
Nationwide Treasury Mailbox
nationwide.treasury@nationwide.co.uk
13Disclaimer
This presentation has been prepared by and is the property of Nationwide Building Society (“Nationwide”). By attending this presentation or accepting this document you represent, warrant and agree that (i) you will not reproduce or
transmit the contents (in whole or in part) of this presentation by any means; (ii) you have understood and agreed to the terms set out herein; (iii) you consent to delivery of this presentation by electronic transmission, if applicable; (iv) you
are not a US Person, as defined below; (v) if you are in the United Kingdom, then you are a person who is (a) an investment professional within the meaning of Article 19 (5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (“FPO”) or (b) a high net worth entity falling with Article 49(2)(a) to (d) of the FPO; and (vi) if you are within the European Economic Area (“EEA”), then you are a person who is a “qualified investor” within the
meaning of Article 2(1)(e) of EU Directive 2003/71/EC, as amended (the “Prospectus Directive”).
This presentation shall not constitute or form part of any offer to sell or the solicitation of an offer to buy or subscribe for any securities. Any securities subsequently issued by Nationwide will not be registered under the United States
Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state or any other jurisdiction of the United States. Any securities subsequently issued by Nationwide may not be offered or sold within the United States
except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
NOT FOR DISTRIBUTION TO ANY US PERSON (AS SUCH TERM IS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES.
In the United Kingdom, this communication is directed only at persons who (i) have professional experience in matters relating to investments falling within Article 19 of the FPO, as amended; or (ii) are Professional Clients (as defined by FCA
Rules), all such persons in (i) and (ii) together being referred to as “relevant persons”.
This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with
relevant persons.
In the EEA, this communication is only addressed to and directed at persons who are “qualified investors” within the meaning of Article 2(1)(e) of the Prospectus Directive.
NEITHER THIS PRESENTATION NOR ANY COPY HEREOF MAY BE DISTRIBUTED IN ANY JURISDICTIONS WHERE ITS DISTRIBUTION MAY BE RESTRICTED BY LAW. PERSONS WHO RECEIVE THIS PRESENTATION SHOULD MAKE THEMSELVES
AWARE OF AND ADHERE TO ANY SUCH RESTRICTIONS. Any failure to comply with these restrictions may constitute a violation of the laws of any such other jurisdictions. In particular, neither this presentation nor any copy of it nor the
information contained in it is for distribution directly or indirectly in or into the United States, Canada, Australia or Japan.
This presentation does not constitute an offering document. The information presented herein is an advertisement and does not comprise a prospectus for the purposes of the Prospectus Directive and/or Part VI of the Financial Services and
Markets Act 2000. The information herein has not been reviewed or approved by any rating agency, government entity, regulatory body or listing authority and does not constitute listing particulars in compliance with the regulations or rules
of any stock exchange. Any future potential transaction is qualified in its entirety by the information in the final form documentation relating to any such proposed transaction. Investors should not subscribe for any securities except on the
basis of the information contained in the final form documentation relating to any such proposed issue of securities, in particular, each reader is directed to any section headed “Risk Factors” in any such documentation.
This presentation is published solely for informational purposes and should not be treated as giving investment advice.
It has no regard to the specific investment objectives, financial situation or particular needs of any recipient. No representation or warranty, express or implied, is or will be made in relation to, and no responsibility is or will be accepted by
Nationwide and its affiliates, agents, directors, partners and employees as to the accuracy or completeness of the information contained in this presentation and nothing in this presentation shall be deemed to constitute such a
representation or warranty or to constitute a recommendation to any person to acquire any securities. Nationwide and its affiliates, agents, directors, partners and employees accept no liability whatsoever for any loss or damage howsoever
arising from any use of this presentation or its contents or otherwise arising in connection therewith.
Although the statements of fact in this presentation have been obtained from and are based upon sources that are believed to be reliable, their accuracy is not guaranteed by Nationwide and any such information may be incomplete or
condensed.
All opinions and estimates included in this presentation are subject to change without notice. Nationwide is under no obligation to update or keep current the information contained herein.
This presentation may contain statements that constitute forward-looking statements. Such forward-looking statements can be identified by the use of forward-looking terminology, such as the words “believes”, “expects”, “may”, “intends”,
“should” or “anticipates”, or the negative or other variations of those terms. Such statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results and performance of securities,
Nationwide or the UK residential mortgage industry to differ materially from any future results or performance expressed or implied in the forward-looking statements. These risks, uncertainties and other factors include, among others:
general economic and business conditions in the United Kingdom; currency exchange and interest rate fluctuations; government, statutory, regulatory or administrative rules or initiatives affecting
Nationwide; changes in business strategy, lending practices or customer relationships; and other factors that may be referred to in the document. While such statements reflect projections prepared in good faith based upon methods and
data that are believed to be reasonable and accurate as of the date thereof, Nationwide undertakes no obligation to revise these forward-looking statements to reflect subsequent events or circumstances. Recipients of this presentation
should not place undue reliance on forward-looking statements and are advised to make their own independent analysis and determination with respect to the forecast periods, which reflect Nationwide’s view only as of the date hereof.
Losses to investments may occur due to a variety of factors. Before purchasing any securities described in this presentation you should take steps to ensure that you understand and have made an independent assessment of the suitability
and appropriateness thereof, and the nature and extent of your exposure to risk of loss in light of your own objectives, financial and operational resources and other relevant circumstances. You should take such independent investigations
and such professional advice as you consider necessary or appropriate for such purpose.
Furthermore, you should consult with your own legal, regulatory, tax, business, investment, financial and accounting advisers to the extent that you deem it necessary, and make your own investment, hedging and trading decisions
(including decisions regarding the suitability of any transaction) based upon your own judgement and advice from such advisers as you deem necessary and not upon any view expressed in this presentation. Certain data in this presentation
has been rounded. As a result of such rounding, the totals of data presented in this presentation may vary slightly from the arithmetic totals of such data.
14Appendix 1: LTV by Geographic Region
Residential mortgage balances by South East South West
LTV and region Greater London Central England Northern England England England Scotland Wales Northern Ireland Total
30 September 2018 £m £m £m £m £m £m £m £m £m %
Stage 1 and 2 loans
Fully collateralised
LTV ratio:
Up to 50% 26,201 11,424 7,456 8,822 6,096 3,160 1,468 949 65,576
50% to 60% 11,339 6,434 4,483 4,417 3,302 1,773 840 386 32,974
60% to 70% 9,361 6,755 6,396 3,796 3,321 2,560 1,336 389 33,914
70% to 80% 7,056 4,893 5,405 3,024 2,458 2,425 1,072 431 26,764
80% to 90% 5,628 2,602 3,177 2,275 1,746 1,257 656 279 17,620
90% to 100% 888 185 404 385 162 128 66 83 2,301
60,473 32,293 27,321 22,719 17,085 11,303 5,438 2,517 179,149 99.1
Not fully collateralised
Over 100% LTV 4 3 21 2 2 7 1 162 202 0.1
Collateral value 3 3 18 2 1 6 1 139 173
Negative equity 1 - 3 - 1 1 - 23 29
Stage 1 and 2 residential
mortgages 60,477 32,296 27,342 22,721 17,087 11,310 5,439 2,679 179,351 99.2
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018).
15Appendix 2: IFRS9 staging and provision analysis
Residential mortgages1 Unsecured
05 Apr 18 30 Sep 18 05 Apr 18 30 Sep 18
Provision Provision Provision Provision
Balance Share of Balance Share of Balance Share of Balance Share of
coverage coverage coverage coverage
(£m) book (%) (£m) book (%) (£m) book (%) (£m) book (%)
(%) (%) (%) (%)
Stage 1 156,647 88 0.01 160,566 89 0.01 3,264 79 0.8 3,397 79 0.7
Stage 2 19,072 11 0.9 18,785 10 0.9 575 14 17.9 642 15 15.4
Of which: >30 dpd 463 488 16 16
Stage 3 1,395 1 3.4 1,427 1 3.1 268 7 88.5 277 6 89.2
Of which: >90 dpd 740 729 61 63
Of which: charged off
n.a n.a. 185 193
accounts
Total 177,114 0.13 180,778 0.13 4,107 8.9 4,316 8.6
Memo: Stage 3 provision n.a. n.a. 75 74
coverage exc. charge offs (%)
Unless otherwise stated, information in this presentation is correct as per Interim Results (30 September 2018).
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