NWIDE Results: Margin Erosion But CET1 Still Strong Post-VMUK

Nationwide BS (NWIDE: A1/A+/A+) FY24 results (YT 4-Apr-24) are solid on credit metrics but do show a rapid slowdown in net interest margins, which is a weak lateral for UK mortgage peers, especially Lloyds Banking. The volume outlook is, however, a little better than six months ago. Spread performance is held back by the VMUK deal but the CET1 news below could start to generate some improvement, we feel.

• Key credit stats: loan losses remain incredibly low (low single basis points) and non-performers in mortgages are 41bp (38bp at Sep-23) and 136bp in consumer banking (from 114bp). So, some modest deterioration. CET1 ratio is a hilariously-high 27.1% (from 27.4%) but this is a mutual and the ratings above reflect that.
• Revenues slowed fast in 2H24 with the NIM indicating 20bp lower more recently, at 146bp – this is certainly indicative of tough mortgage pricing, a weak lateral for Lloyds and, less so, Barclays. The mortgage new business margin looks as low as 36bp recently (from 48bp in 1H24). Costs were well controlled but underlying was still something like 30% lower in the second half than the first (but there is always some seasonality).
• Outlook: in volume terms, this is better than six months ago with house prices and deposit volumes both starting to show some stabilisation/recovery. CET1 ratio is seen at 20% after the VMUK deal completion (seen in 4Q 2024) though the extent of fair value gains on acquisition are not yet certain.

Conf call is 1030 (London time) at: https://bit.ly/4breFNh