Board

Nationwide announced this week the “Big Nationwide Thank You” – a £50 one-off payment to eligible members. This is entirely separate to the recent annual (but not guaranteed, or clearly defined) Fairer Share Payment.

This “thank you” payment is another example as to why members should be more engaged, and members’ perspectives better represented, at a board and senior management level. Members’ should be looking beyond the £50 windfall about to land in their account, and think about whether the figure is right, whether it could have been used in a better way (e.g. better mortgage rates), or should be kept in reserve for future needs given current economic uncertainty and the amounts being spent on the acquisition and integration of Virgin Money.

This is another example of why I am requesting that members nominate me to stand for election to the board of directors of the Nationwide Building Society, so that I can better represent member perspectives.

Why the extra one-off payment?

What is The Big Nationwide Thank You?

On 1 October 2024, we completed the purchase of Virgin Money, becoming an even stronger force in UK banking. This was made possible by the financial strength Nationwide members helped us build.

To say thank you, we’re giving over 12 million of our members £50 each as part of The Big Nationwide Thank You. Over £600 million in total.

What’s the running total for the Virgin Money acquisition?

Nationwide has spent members’ funds on the following to date given the Virgin Money acquisition:

• £2,900 million to buy Virgin Money shares from Richard Branson, former NAB (mostly Australian) shareholders, and current / previous managers (e.g. Debbie Crosbie, the Nationwide CEO who was the Virgin Money COO)
• £250 million, plus a further £15 million per year (for an expected 6 years), to Richard Branson’s Virgin Group for the right to use the “Virgin Money” brand – which Nationwide expects to close down in due course
• Over £80 million estimated in fees and expenses (advisors, bankers, external public relations, lawyers etc.)
• £650 million capital injection into Clydesdale Bank, a Virgin Money subsidiary
• £617 million to members as a “thank you” for using their money to buy Virgin Money without their say
• An estimated £10 million on administration and marketing spend (online and in print) to promote the “thank you” payment – perhaps in an effort to curry favour with news editors.
• £5 million in additional compensation for the society’s directors (see Resolutions 2 and 3 passed at the last AGM) for governing a more complex business of their own creation

Plus, still to come: the costs of integration and restructuring the combined Nationwide Group at an estimated further £1,000 million.

So the cost of the Virgin Money acquisition, given the above, is now over £5,600 million (see this Google sheet for calculations and sources). Some of that amount (e.g. integration costs) might be funded out of future profits of the combined Nationwide Group (noting the most recent interim report shows profits are down on last year). But the vast majority is clearly being funded out of reserves, i.e. members’ equity in the business accumulated from profits over 100+ years, as the deal was not financed by debt.

The Virgin Money deal was effectively therefore a massive transfer of wealth: from members’ equity in Nationwide, to Richard Branson (via the Virgin Group), Virgin Money management and shareholders (most of whom were Australian, following the demerger of the Clydesdale and Yorkshire Banking Group from National Australia Bank). And while Virgin Money plc shareholders were able to vote on the deal (to sell their shares at a 40% premium to market value), Nationwide members were blocked from a vote on the acquisition by the Nationwide board.

Thank you payment just raises more questions

Perhaps the Big Thank you payment is an example of Nationwide listening to member feedback, noting the negative comments received from members excluded from the “fairer” share payments in the past. This one-off payment is more equitable in its distribution to members: the “thank you” payments will be paid to more than 70% of all members (12m out of nearly 17m), unlike the £730 million spent on “fairer share” payments across 2023 and 2024 which were paid to less than 25% of members (fewer than 4m of the then 16m).

I hope this is a sign that Nationwide are reconsidering the criteria for the currently annual (but not guaranteed or pre-defined) “fairer share” payment so more members participate in the future distribution of profits.

It is also possible that the implementation of the FCA Consumer Duty regime is driving these changes, after a high volume of complaints from ineligible members who didn’t receive “fairer share” payments in the past.

A number of questions remain:

• Why is Nationwide doing this, and why now, given the economic climate and lower Group reserves given the massive sums spent on the Virgin Money acquisition?
• Were members consulted? It’s clear people are being asked about it after the event via the Member Voice platform, but there appears to be no discussion of the alternative uses of members’ funds.
• Do management have more certainty around future profits of the Nationwide Group?
• Will the Virgin Money integration be shorter or cheaper than anticipated?
• Or is this an effort to appease members ahead of breaking some bad news?
• Or a response to recent criticism about Nationwide increasing credit card interest rates at a time that Bank of England base rates are coming down?

It has been a long standing concern of mine (and others) that the integration of Nationwide and Virgin Money will be difficult, expensive and time-consuming. It is likely therefore that the quality of products and services delivered by the bigger Nationwide Group will suffer, as more management time is spend on integration rather than improvements to the core banking / society operations.

What about the alternatives?

Taking a step back, is making this payment the right mechanism to distribute previously retained profits i.e. pay “dividends” on members “shares” in the building society? Is now the right time to do that?

Making identical payments to eligible (some, not all) members, instead of setting better interest rates, is effectively a transfer of wealth from the most indebted customers (with bigger mortgages) or richer customers (with larger savings accounts), to the customers saving or borrowing small amounts, as eligible members are all receiving the same payment, despite different balances in their accounts.

Further, is giving away a uniform £50 or £100 per member the right thing to do during a period of significant economic uncertainty? Would it have been wiser to keep this money in reserve? Note that the payment is treating as interest, so is taxable, and therefore distributing profits this way these means a portion of these payments are going to the government via income tax.

Make home ownership more achievable and affordable

Or should a building society like Nationwide be focused on offering better mortgage rates instead (which wouldn’t incur tax), during an ongoing cost of living crisis? That might have been a better use of the estimated £6.3 billion of members’ money spent on Virgin Money and these unsolicited “fairer share” and “thank you” payments as per the above.

To put £6.3 billion into context: it is the equivalent of 1% off the mortgage interest rate for every member, for three years in a row. (The latest figures put the residential mortgage book at £211 billion, so 1% in interest is £2.1 billion.) For the average mortgage (borrowing £200,000 over 25 years at an effective rate of 3.84%), a 1% rate reduction reduces the monthly payment by £109. So over three years, that would save the average mortgage customer almost £4,000.

It is unclear how, or if, the Society has consulted upfront with members on how it is spending the society’s reserves (i.e. members’ equity). It has a habit of doing something first, and then asking / ignoring members afterwards (cf. see recent Member Voice below).

What we can conclude is that Nationwide believes it knows better than the membership (that it is supposed to serve, and who ultimately own the building society). This “Thank You” payment serves as yet another example of this, after Nationwide avoided giving members a vote on the Virgin Money acquisition last year.

I’d be interested to hear what other members have to say. Comments are open below, or you can email me direct james@james4nationwide.co.uk (or see Contact page for more options).