Nationwide in a safety plea for savers as it dives by 69%

Nick Goodway
27 May 2009

Nationwide chief executive Graham Beale today called for an immediate hike in the protection offered to all savers after he revealed that the country's biggest building society saw hundreds of millions of pounds of savings withdrawn in the months following the collapse of Lehman Brothers.

His call came as Nationwide revealed a 69% drop in pre-tax profits to £212 million, which came after it was forced to pay £241 million to the Financial Services Compensation Scheme following the failures of Bradford & Bingley and the Icelandic savings banks.

Beale said that NS&I and Northern Rock took in seven out of every 10 pounds saved between October last year and March this year.

He said: "Their success has not been driven by particularly attractive savings rates but by the guarantees which state-owned institutions can offer.

"I don't know how I can respond. I can only offer £50,000 of guarantees. I want to see that raised to £100,000 for everyone.

"The compensation scheme is under review but we are not getting any indication of anything happening soon. We need to watch these market distortions from the nationalised and part-nationalised institutions."

The scale of the shift in savings immediately after Lehman's collapse last September was dramatic.

In its first half Nationwide took in a net £2.6 billion of savers' money, which was a 34% market share. In the second half it had a net outflow of £900 million which meant for the full year its market share had plummeted to 10% and was actually negative in the last six months.

Beale pointed out that while UK consumers saved £48 billion in the tax year 2007-8, that plunged 77% to just £11 billion in 2008-9. He said: "At the same time with wholesale money markets virtually closed there were more players among the banks and building societies chasing a smaller pot of savings."

During the year Nationwide took over the Cheshire, Derbyshire and parts of the Dunfermline building societies. Beale would not rule out other societies needing to be rescued in the coming months.

But he said the events of the past year proved the strength of building societies' mutual status as against banks and their shareholders.

"We can take the medium-term view and even tolerate lower profit levels for a considerable period of time. The majority of the 53 building societies out there are still very stable," he said.