Society warns of job cuts as profits slump

The mutual posted underlying pre-tax profits of 212m in the year to April 4, down from 393m the previous year.

Nationwide said it is taking tough action to boost profits, including possible cuts in its administration centre network.

It is working on plans to reduce its 1,000 retail outlets and trim a 20-strong network of back office and administration centres. The group axed around 800 jobs last year and closed 12 branches.

It has already cut more than 150m of costs over the past three years.

More substantial reductions among its 15,800 workforce are expected over the next few years, although the group said it was too early to give numbers.

Nationwide said the job losses are partly due to duplication following deals over the past few years, with Nationwide having grown substantially following mergers with the Derbyshire and Cheshire building societies and the takeover of ailing Dunfermline's savings assets last March.

The group did have some cheer for the market, saying it expects property prices to remain stable over the next year.

Nationwide chief executive Graham Beale said: "Unless there is a significant spike in interest rates, which we are not expecting, a major dip in prices is unlikely to occur over the next year."

Nationwide reported a one per cent rise in house prices in April, taking the annual rate of increase into double digits for the first time in nearly three years. It said an increase in properties for sale would relieve pressure on prices.

Nationwide, which has been hit by a contraction in its core mortgage and savings markets and by pressure on margins, said it sees lower levels of profitability continuing throughout 2010.

It lent 12bn of mortgages over the year, giving it a market share of 8.7 per cent, down from nine per cent in 2008-09.

Arrears remained broadly flat, with mortgages three months or more in arrears totalling 0.68 per cent, well below an industry average of 2.2 per cent. Arrears are expected to remain stable.

The commercial property portfolio saw a significantly better second half with impairment charges dropping 20 per cent to 119m.

Nationwide expects lower levels of impairment this year as commercial bad debts have peaked.

The group's savings business has been hit by stiff competition for customer deposits from rival banks and Government-backed businesses.

But Nationwide said it had begun to stem the flow in the second half.

Yesterday's profits fall comes after a 69 per cent drop the previous year as the group struggles to maintain margins in the face of a record low bank base rate.

The group said Government belt-tightening and potential tax hikes could heap further pressure on profits. Spending cuts and austerity measures could lead to higher unemployment and therefore a hike in customer mortgage arrears.

Mr Beale warned the ongoing sovereign debt crisis in Europe could have an impact on interbank interest rates and push up the price of fixed mortgages.

He said the group was not planning to raise prices yet, but said "ultimately it will impact on the consumer" if eurozone fears and market uncertainty did not recede.

The mortgage rate winners

Customers who are staying on low mortgage rates are costing Nationwide more than 450m a year.

The group said the cost – double its underlying pre-tax profits – was the result of a pledge that its standard variable rate would never be more than two per cent above the Bank of England base rate.

As a result these customers are currently paying interest of just 2.5 per cent on their mortgage, one of the lowest rates in the high street.

The mutual would not be drawn on how many customers are currently paying the rate, saying only that a "large majority" of its 1.1 million borrowers were either on it, or would revert to it when their current deal came to an end.

In a normal mortgage market homeowners typically stay on their lenders' standard variable rate only for as long as it takes them to remortgage to a better deal.

But plunging interest rates, combined with the tighter credit scoring criteria introduced by lenders following the credit crunch, have left many borrowers better off staying put.

Nationwide took steps to address the issue last year, when it said customers taking out a mortgage after April 29 would revert to its standard mortgage rate of base rate plus 3.49 per cent.