Nationwide is paying out £600m to its members. But should it be? (The Times)
Not everyone thinks the ‘Big Thank You’ payments are a good idea although they do send a powerful message
Patrick Hosking, Financial Editor
Wednesday March 19 2025, 5.00pm, The Times
Link: https://www.thetimes.com/business/companies-markets/article/nationwide-is-paying-out-600m-to-its-members-but-should-it-be-50plkqb5b
These are unusually good times to be a building society. Margins are fat; defaults low. Nationwide is so flush with cash it is in the process of paying out £600 million to eligible saving and borrowing members. More than 12 million of them have received letters or emails in the past few days alerting them to a £50 “Big Thank You” payment coming their way.
That’s on top of a separate annual payment known as “Fairer Shares” being made to almost four million of its more “active” customers — people who have a current account with the society as well as either a savings account or mortgage. That has amounted to £100 two years running, with expectations of the same again to be announced in May. The cost? Getting on for £400 million or so per year.
Not everyone thinks this is a good idea. James Sherwin-Smith, a former Oliver Wyman consultant and payments industry executive with an encyclopaedic knowledge of mutual rules and history and a near-obsession with the Nationwide, thinks the money could be better spent and is fighting a David-v-Goliath battle to get on to the Nationwide board to argue his case.
He thinks the £2.9 billion acquisition last year of Virgin Money was improperly pushed through because Nationwide members were not given a vote on it and worse, that it could prove a disaster for the society. Virgin Money, he argues, is “a Frankenstein bank” cobbled together out of Clydesdale Bank, Yorkshire Bank and bits of the old Northern Rock with a massive IT integration job needed to sort it out.
Nationwide should therefore not be squandering cash if there is any possibility that more capital might be required to fully integrate the business into the society. Moreover, he argues, it should be rewarding members with better interest rates on borrowing and saving, rather than paying out cash sums in this rather arbitrary way.
Sherwin-Smith, 44, also blasts the society for its lack of accountability to members, who of course are the owners. There hasn’t been a member-nominated addition to the board in 20 years; only around 4 per cent of members typically vote on resolutions; and the annual meeting has become a virtual-only “stage managed” charade with questions vetted and filtered by the society.
The jury will be out for years on his worries about the Virgin Money deal. Nationwide argues it gives it greater scale, more diversified sources of funding and more exposure to current accounts, business banking and credit cards. It was able to book an accounting profit of £2.3 billion on the deal which was struck well below book value.
On the other hand, it paid a 40 per cent premium for the business and there was a notable absence of interest in Virgin from any other possible suitor. Nationwide has already had to transfer £650 million into the ring-fenced Clydesdale business to bolster its balance sheet. Nationwide’s core capital ratio has taken a big hit — down from 28.4 per cent to 19.6 per cent.
Still, it seems inconceivable that the Prudential Regulation Authority would be allowing these cash outflows if it thought there was any possibility of Nationwide running low on loss-absorbing capital. Building societies, unlike banks, have no recourse to fresh equity if things go wrong. Nationwide, by most measures the second biggest savings and loans provider in the country, would be a system-destabilising disaster if it got into deep trouble.
My own view (full disclosure: I’m in line for one of those £50 windfalls) is that paying out spare cash, so long as it really is spare, is a good idea. Mutuals are in a war with the banks, one they have spent most of the past century losing. The benefits of mutuality are hard to sell. Who really believes it when a building society claims to have passed on x million in “member benefits”? These claims are based on the difference between average borrowing and savings rates and the society’s own rates. The details are never set out or explained.
How much more potent a message is a hard cash payment? It is unfudgeable and a powerful tool for retaining customers. It is also a good discipline on management, just like the expectation of dividends paid by shareholder-owned companies. Boards are less likely to be tempted to divert capital into foolish diversifications or management perks.
There will always be instances of unfairness, but Nationwide’s Fairer Shares programme is also probably right to favour core customers (those with current accounts) over others who have a tiny neglected savings account they have never quite got round to closing or a mortgage through a broker. It is those current account customers who are more likely to generate fresh business and cross-selling opportunities for the society in future. They need to be nurtured that bit more.
The bungs seem to be working. Nationwide is the most “defected to” institution, according to recent data from the Current Account Switch Service. Current account openings by students doubled to 39,000 in the six months to September, perhaps boosted too by the advertising campaign starring Dominic West as the sneering, branch-closing high street bank boss.
The latest rankings from the Competition & Markets Authority show Nationwide outpacing the traditional banks in public opinion on overall quality, though still behind the digital banks like Monzo, Starling and US-owned Chase (which became the newly crowned number one last month).Virgin Money, by the way, is a humiliating 16th out of 17 — illustrating the mountain Nationwide faces to turn it around.
Sherwin-Smith is too purist about those cash payments, but he is asking a lot of the right questions. Members who want to nominate him as a board director can find him on james4nationwide.co.uk. Nationwide does need to explain better where it is going, how it allocates rewards and why.
Patrick Hosking is Financial Editor of The Times