Nationwide’s numbers come with a sting in the tail

It is laudable that the society has sacrificed profits to give members a better deal, but when it comes to chief executive pay, it behaves as badly as any plc

Nationwide: Is it on your side? (Reuters)

If the Nationwide Building Society didn’t exist, you might have to invent it. Its latest results show why.

You may remember that Lloyds, the big dog of retail financial services in Britain, was recently roundly cheered by the City when it revealed that it had somehow managed to increase the gap between what it pays to savers and what it charges borrowers, despite the low interest rate environment.

By contrast, Nationwide has done the opposite. Its latest results reveal that its margins were squeezed, as a result of the society handing back some “£505m to members which included maintaining selected savings rates while passing on the base rate decrease in full to mortgage borrowers”.

That contributed to a significant fall in the society’s profits for the year ending April 2017. They declined to £1.1bn from £1.3bn.

Because Nationwide doesn’t have to keep analysts sweet and shareholders onside by hitting profit forecasts and increasing dividends, that fact doesn’t matter like it would to one of the big banks.

Owned by members, building societies enjoy the flexibility of being able to sacrifice profits to offer them something better.

When you have a large institution with the facility to do that in a market, it has an impact.

Lloyds, and the three other big banks, can’t afford to get too cute on behalf of their shareholders, because, if they do, they may start to lose customers. It is often a pain to have to move accounts, and banks rely on that, but they know they can only push customers so far before the latter will start to investigate alternatives, such as joining Nationwide.

“The combination of the low-interest rate environment and our decisions to protect savings rates for longer led to an exceptional year for member value,” said chief executive Joe Garner, patting himself on the back as he did.

Perhaps his members will feel they can afford to allow him a little self-congratulation? Perhaps his members should peruse the society’s annual reports before they do that. Within them can be found sting in the tail of these results.

A business owned by and run in the interests of its customers is a wonderful concept and one that Nationwide lives up to in many ways.

But in one important respect it does not: Nationwide is every bit as bad as its plc counterparts are when it comes to the question of the chief executive’s pay.

We don’t yet know how much Mr Garner made during the society’s most recent financial year, but we do know that the society’s chief executive was paid £3.4m in the year prior to it. In the four previous years, Nationwide bosses made £3.4m, £2.6m, £2.3m, and £2.3m respectively.

That is quite an escalation, and it is highly questionable, including when it comes to an institution as otherwise estimable as Nationwide. Perhaps all the more so.

Regrettably, it’s also far from unusual. Not for nothing did the respected finance editor Jeff Prestridge describe building societies as “wolves in sheep clothing” when he looked at the startlingly high pay packages handed to industry bosses.

Is it any wonder when the sector’s big gun, the industry’s leader, sets such a bad example?

Nationwide’s presence in the market is welcome, but it is far from being an unalloyed blessing.

The problem with mutual companies is that while they should be good for customers, and sometimes are, it too often feels as if their priorities lie in looking after the mutual interests of their bosses.