Nationwide: pay us like us bankers – just don’t hold us accountable like bankers
Kalyeena Makortoff, writing in The Guardian today, has highlighted Nationwide’s blatant double standard when it comes to executive pay.
Nationwide is arguing that its executives should be paid in a comparable way to executives at large UK banks, but as Nationwide is a building society, members should not be granted a binding vote on the remuneration policy (as is the case at large UK banks).
Many members would baulk at the idea that a mutual society CEO should have the opportunity to earn £6.9m in a single year (a recent subject of Private Eye’s number crunching). Nationwide’s CEO is already the most highly paid building society CEO in history.
Some members may even be motivated to vote AGAINST the remuneration report and remuneration policy at (or ahead of) the upcoming AGM. However, these votes are advisory and non-binding i.e. the board and society can choose to ignore these.
The Guardian article neatly portrays Nationwide as a building society taking advantage of a loophole. Rather than acting like a mutual society, and in the interests of fairness, by putting remuneration to a binding vote of its owner-members, the society instead is arguing that as it’s not a listed company, and has no shareholders, it’s not required (by law) to offer members a binding vote. So instead of doing the right (i.e. moral) thing, it side-steps it. The double-standard is astonishing. Nationwide is effectively saying “we’re not a bank, but pay us like bankers – just don’t hold us accountable like bankers.”
Nationwide is effectively saying “we’re not a bank, but pay us like bankers – just don’t hold us accountable like bankers.”
James SHerwin-Smith, james4nationwide.co.uk
Questions members may want to consider before voting, or ask at the AGM
I also have to question why Nationwide’s board thinks that its executive should be paid in a comparable manner to those working at shareholder-owned banks. For example:
- £6.9M for the CEO is 280x what a junior employee is paid. How is this appropriate?
- Nationwide is not listed, so the executive management task is lower, and the individuals are less accountable (remuneration votes are non-binding). Why should executives be paid similarly to a listed company?
- Nationwide is building society, and as such it is a much simpler and less risky business than a bank e.g. it does no/very little wholesale, corporate or investment banking (and nor should it). Why should executives be rewarded similarly to more complex and riskier banks?
- Nationwide is a mutual. Why are performance benefits not accruing to members rather than executives?
The Quick Vote props up the approval rate
Note that Nationwide has offered an advisory vote on remuneration since 2003. It instigated the Quick Vote in 2006 (which encourages members to give their vote to the chair). The approval rate immediately jumped from <75% the year before to almost 95%, and has remained >90% most of the time.
Since the Quick Vote was introduced, member turnout has been in decline
Note that since the introduction of the Quick Vote in 2006, despite increasing membership, the number of members that turn out to vote has been in long term decline. Why vote when the board is almost guaranteed to get its way? See Nationwide AGM 2025: the illusion of governance and the futility of membership for more.
Private Eye’s number crunching and Nationwide CEO’s “best-timed gong”
Private Eye (issue 1652, page 8) draws attention to the award of a damehood to Debbie Crosbie, Nationwide CEO, under the title of “KING’S BIRTHDAY TREATS: Honours round-up.”
If you’re a Nationwide member, and don’t agree with paying a mutual society CEO 280x what a junior member of staff receives, you may want to use your vote ahead of the upcoming AGM.
Best-timed gong is the damehood for Debbie Crosbie thanks to her “advocacy for ethical banking practices and corporate responsibility”.
Within days of the announcement, Nationwide’s board said Crosbie, who already earns £2.4m, should have a bonus plan that could take it to £6.9m. She may be fortunate the envelope from the Cabinet Office arrived some time before the pay proposal.
NUMBER CRUNCHING
£24,750
Minimum salary for employees at Nationwide, under a newly agreed pay package.
£6.9m
Possible pay package for Nationwide’s chief executive, Debbie Crosbie, under a proposed new bonus plan
Nationwide AGM 2025: the illusion of governance and the futility of membership
With 17 million Nationwide building society members eligible to vote, more than some sovereign countries, the “modern” mutual’s 2025 AGM should be a leading example of democracy and corporate governance in action.
Instead the largest building society in the world exhibits contempt for its members by acting in an exclusive and autocratic manner. The outcome is largely a foregone conclusion: very few members attend the AGM, and voting turnout runs at 4% (of which 95% vote in favour). Monitors would classify such a general election result as more befitting an authoritarian, rather than democratic, regime.
Leadership can only be challenged once a year, at an inconvenient time, in a highly stage-managed, virtual environment.
Nationwide holds its Annual General Meeting mid-morning, mid-week, and at the start of the summer holidays. This prevents nearly all members from participating. Most mutuals choose venues, dates and times that raise engagement, not restrict it.
Nationwide is the only building society to operate a virtual-only AGM. The legality of such practice has been called into question by the Financial Reporting Council, while the government has called for a review. Meanwhile every other of the 41 building societies in the UK allow members to attend their AGM in-person. Some also include the option of joining online.
Nationwide instead chooses to: contribute to digital exclusion by denying attendance by those without the necessary skill or technology; employs a Q&A process that means questions can be filtered, screened from view or simply ignored completely; and effectively prohibits members from meeting and interacting with fellow members.
Alternative views are not tolerated.
Nationwide resisted a call for a vote on Virgin Money, the largest acquisition in its history, contrary to the spirit of the law. Nationwide opaquely deems member nominations for their own candidate as invalid or ineligible. Nationwide objects to applications to the FCA to access the member register (a statutory right). Nationwide refuses to allow members to submit nominations or resolutions through digital means (a particular double standard given its investments in technology, support for a virtual-only AGM and electronic voting).
There are no alternative candidates or resolutions on the ballot as a result. So instead of being able to vote FOR an alternative to the board’s recommendations, if you disagree, all you can do is vote AGAINST.
Voting outcomes are skewed by the “quick vote”.
Nationwide employs a prominent, and much criticised, “quick vote” option that makes passing initiatives that are not supported by the board almost impossible. It appears at the top of the paper ballots, and is the first option for electronic ballots (where selecting it makes all other options disappear). Over 80% of members choose to quick-vote, handing considerable power to the chair in support of the board’s recommendations. As a result, approval rates run at 95% or higher.
Even if members were to overcome the inherent bias of the quick vote, some agenda items (e.g. executive remuneration) are non-binding.
Less than 0.002% members attend the AGM. Turnout is just 4% (of which 95%+ vote in favour of the board’s recommendations).
Nationwide argues that this low level of participation is a good sign: members are perceived as mostly content with the status quo.
The alternative argument is that members recognise their participation is futile: the deck is so stacked against them having their say that turning up to the AGM or voting is a pointless, illusory exercise in governance.
Nationwide’s management and board pursue their agenda unchecked.
Members’ voices aren’t well represented and can be easily ignored or dismissed. Big decisions can be pushed through unchallenged. Adverse outcomes can materialise without consequence or accountability for the individuals responsible.
As the emphasis of the building society continues to shift towards ‘banking’, it gets harder to see the distinction between the verb and the noun — despite expensive, poorly-executed representations to the contrary.
The board meanwhile supports management in its quest: an expensive and unpopular acquisition, increasing executive pay and growing margins rather than passing on the benefit to all members (“fairer share” payments to a minority of members could be argued to more closely resemble distracting bribes than an equitable distribution of mutual profits).
Take action: Nominate a candidate to represent your views.
James Sherwin-Smith is seeking nominations from eligible members to represent member views at a board level. Nominate James today so that there is at least one member nominated candidate on the ballot next year.
“Have your say”: Vote AGAINST all measures.
In the meantime, with no alternatives available to vote for on the ballot, make your voice heard by registering your protest. Reject the quick vote option and instead vote AGAINST all ballot entries.
Nationwide 2025 results: Virgin Money drags on costs, profitability and capital
Costs related to the Virgin Money bank acquisition continue to rise at Nationwide building society. With years of integration work yet to begin, Nationwide members should be concerned. When the deal was proposed, the building society sought to placate its members (who were calling for a vote) with assurances that the deal represented “good value” and that retaining Virgin Money profits would be a better return than holding their capital at the Bank of England.
The initial signs are worrying. Profits at Virgin Money are down 80% immediately after acquisition, which means the return on capital argument made by the society was wrong. Further, the society’s capital ratio is down by one third, leaving the society financially weaker now the deal has completed, contrary to assertions made by the chairman prior to completion.
Those that were responsible for the transaction are beginning to move on. It’s unclear who will be held accountable if the early signs hold true: Virgin Money was a bad deal for Nationwide members.
More detail below.
Nationwide published its annual results today. The society’s accompanying press release draws media attention to:
- £2.8 billion of member ‘benefit’ (a topic for another day),
- Another ‘Fairer Share’ distribution for 2025 (similar to last year, £100 will be paid to a minority of members who operate a current account in a particular way alongside a saving or mortgage account), and
- A new 5% ‘exclusive’ member investment bond (max £10,000 while other savings rates offered by the society languish).
What the press release doesn’t detail however — beyond referencing “outstanding full year results” — is the actual financial results, particularly given this is the first annual results incorporating Virgin Money.
Looking deeper, it’s perhaps easy to see why. Financially, Virgin Money is a big drag on the Nationwide results when looking at the underlying basis. (The “statutory basis” inflates profitability this year due to the one-off gain on acquisition.)
On an underlying basis Virgin Money is reporting just £44 million of profit before tax for the first 6 months post acquisition. This is a terrible return for members given the £2.8 billion initial cost of acquisition, and billions more of additional spend associated with the transaction. Prior to the acquisition, Virgin Money reported Profit Before Tax of £558 million for the 12 months ending 30 Sep 2024, and £279 million for the 6 months ending 31 March 2024 (to draw a like-for-like comparison). So profits at Virgin Money are down over 80% post-acquisition.
Contrast this with the society secretary’s response to concerned members seeking a vote on the acquisition prior to deal completion:
The price agreed for the Virgin Money business represents good value and will lead to immediate financial benefits for the Society and its members.
This deal will bring a profitable shareholder-owned bank into the mutual Nationwide Building Society. In the last financial year, Virgin Money generated pre-tax profits of £345 million and announced distributions of over £270 million to shareholders. After the deal, Nationwide will be able to retain Virgin Money’s profits in the UK for the benefit of its customers and members and to provide an immediate return from the purchase.
The capital that Nationwide is using to purchase Virgin Money is currently earning just over 5% in interest from the Bank of England. Using Virgin Money’s pre-tax profits for the last financial year as an example, Nationwide would achieve a 12% return on the one-off purchase price – more than double the current return. The price agreed for Virgin Money is also at a considerable discount to its book value. That means that when we complete the deal, we expect to make an immediate and significant financial gain. This will be illustrated with our next set of financial results.
The Virgin Money profits retained by Nationwide will improve the financial strength of the Society.
Note that £44 million (£88 million annualised) vs. the initial £2.8 billion paid initially to acquire Virgin Money is less than a 3.2% return on members’ capital (which is less than the current Bank of England Base Rate at 4.25%, and inflation at 3.5%), and when other post-acquisition costs are taken into account (the total is approaching £6 billion), the return is even lower.
Nationwide continues to push the theoretical narrative that Virgin Money was a good deal because it was bought for less than book value. This disregards the practical reality that Nationwide paid a 40% premium above market value — despite no other bidders emerging. (The market valued Virgin Money at less than book value because of its poor profitability and the low return on capital offered to shareholders.) Nationwide has since reported that the book value of Virgin Money is even higher, recording this as a one-off gain that inflates statutory profits temporarily this year (and somewhat artificially as the increase mostly relies on an accounting treatment applied to intangible assets).
Nationwide’s Common Equity Tier 1 ratio (CET1%) has fallen by almost one third due to the acquisition: from 27.1% pre-transaction, to 19.1% of the group post-transaction. This is a key ratio that describes the building society’s financial strength, representing the amount of loss absorbing capital relative to its lending.
Contrast this with the society chairman’s 21 March 2024 letter to members — who were denied a vote on the deal — which wrongly stated that the “acquisition will strengthen Nationwide financially”. The chairman is now expected to step down from the board.
The Big Nationwide “Thank You”: £50 for what and why?
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).
Oral hearing called by the FCA re member register access
The FCA have agreed I can share the following information:
An oral hearing will convene on the 26 February 2025 at 11am at 12 Endeavour Square, London, E20 1JN. The hearing will be in-person only and will last approximately 90mins.
This hearing is to determine an application to obtain a copy of the register of members of Nationwide Building Society made under paragraph 15 to schedule 2 of the Building Societies Act 1986. Both applicant (James Sherwin-Smith) and Society have provided written representations as per the process. The applicant and society have exercised their statutory right to request an oral hearing.
The hearing will be held in public, unless an application is made by either party to hold it in private. Any such application will be determined on the day of the hearing itself.
Because the hearing is going to deal with the issue of access on the day itself, and capacity in the hearing space is limited, it is important to indicate in advance your intention to attend. Registration is not a guarantee of entry.
In order to register, please email: mutual.societies@fca.org.uk*. Using the subject heading “Oral Hearing February 26”. This must be received before the 25 February 2025.
Learn more about how to nominate me to stand for election to the board of Nationwide.
I will write a further update about a member’s statutory right to access the register of members of a mutual society in a later post.
* Email address corrected at 15:00 on 24-Feb-2025 by JSS: previously “mutuals.society@fca.org.uk” (as per the original text provided to me by the FCA), however this email address has been reported to me as undeliverable.