Nationwide seeks to raise up to £500m with core capital deferred shares
23rd nov,2013
CEO Graham Beale says building society spent four years designing alternative to permanent interest rate-bearing shares
Nationwide's CEO said
he expects investors to receive an annual payout of between 9.5% and
11.5%, with a cap of 15%. Photograph: David Sillitoe/The Guardian
Nationwide
building society will raise up to £500m by issuing a type of debt that
meets new rules on capital but does not compromise the group's mutual
model – becoming the first customer-owned lender to do so.
Chief executive Graham Beale said the group spent four years designing the securities and will raise £300-500m through the core capital deferred shares, from institutional and professional investors.
The new instrument is an alternative to permanent interest rate-bearing shares (Pibs), which were issued by mutually owned financial services firms in the past. However, they no longer count toward core capital under new regulatory rules, and may address concerns over the mutual model. Mutuals were seen as vulnerable compared with publicly listed banks because they cannot tap existing shareholders for funds in times of crisis.
Beale said the issue would establish a precedent for mutuals across Europe.
He added: "It's also then available to the rest of the UK mutual sector, the other building societies and, talking to our advisers, they think this may well play out with some of the European mutuals."
Investors who buy the shares will be entitled to just one vote at meetings, regardless of how much they have invested.
The coupon on the shares is discretionary and not fixed. It will be based on how the business is performing. Beale said that, based on current market conditions, he expected investors to receive an annual payout of between 9.5% and 11.5%, with a cap of 15%.
Beale said the issue would improve its leverage ratio by between 0.12 and 0.2 percentage points.
Nationwide's leverage ratio stands at 2.3% and it must get that up to 3%6 by 2015. Beale said it was well-positioned to achieve that goal, which was agreed with Britain's financial regulator in July.
Beale said he does not expect Nationwide to issue more core capital deferred shares before 2015, and is confident it can meet that target through retained earnings. "The important thing is we've got a stake in the ground if we need to call on this sort of issuance but we have no immediate or medium term plans to issue," he said.
A prospectus is being sent to investors and trading in the new instrument will start on 9 December.
Nationwide said last week that it had more than doubled its profit in the first half of its fiscal year and was picking up business from all major competitors.
Its performance has contrasted with that of customer-owned rival, the Co-operative Bank, which has fallen under the control of US hedge funds after a £1.5bn capital shortfall.
Beale said Nationwide had not taken away significant numbers of customers from the Co-operative Bank after the scandal involving the bank's former chairman Paul Flowers.
AJAY SINGH THAKUR
PGDM 1st Years
Chief executive Graham Beale said the group spent four years designing the securities and will raise £300-500m through the core capital deferred shares, from institutional and professional investors.
The new instrument is an alternative to permanent interest rate-bearing shares (Pibs), which were issued by mutually owned financial services firms in the past. However, they no longer count toward core capital under new regulatory rules, and may address concerns over the mutual model. Mutuals were seen as vulnerable compared with publicly listed banks because they cannot tap existing shareholders for funds in times of crisis.
Beale said the issue would establish a precedent for mutuals across Europe.
He added: "It's also then available to the rest of the UK mutual sector, the other building societies and, talking to our advisers, they think this may well play out with some of the European mutuals."
Investors who buy the shares will be entitled to just one vote at meetings, regardless of how much they have invested.
The coupon on the shares is discretionary and not fixed. It will be based on how the business is performing. Beale said that, based on current market conditions, he expected investors to receive an annual payout of between 9.5% and 11.5%, with a cap of 15%.
Beale said the issue would improve its leverage ratio by between 0.12 and 0.2 percentage points.
Nationwide's leverage ratio stands at 2.3% and it must get that up to 3%6 by 2015. Beale said it was well-positioned to achieve that goal, which was agreed with Britain's financial regulator in July.
Beale said he does not expect Nationwide to issue more core capital deferred shares before 2015, and is confident it can meet that target through retained earnings. "The important thing is we've got a stake in the ground if we need to call on this sort of issuance but we have no immediate or medium term plans to issue," he said.
A prospectus is being sent to investors and trading in the new instrument will start on 9 December.
Nationwide said last week that it had more than doubled its profit in the first half of its fiscal year and was picking up business from all major competitors.
Its performance has contrasted with that of customer-owned rival, the Co-operative Bank, which has fallen under the control of US hedge funds after a £1.5bn capital shortfall.
Beale said Nationwide had not taken away significant numbers of customers from the Co-operative Bank after the scandal involving the bank's former chairman Paul Flowers.
AJAY SINGH THAKUR
PGDM 1st Years
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