Nationwide Building Society, the U.K.’s largest customer-owned lender, had its credit rating cut by Standard & Poor’s, which said impairments on commercial real estate loans are hurting its efforts to bolster capital.
The ratings company lowered Nationwide’s long-term counterparty credit rating to A from A+ and its junior subordinated debt, or permanent interest-bearing shares, to BBB-from BBB, S&P said in a statement today.
Nationwide’s impairment charges for commercial real estate loans totaled more than 450 million pounds ($703 million) in the year through April. The lender said last month it could comply with demands from regulators to bolster capital without turning to investors, unlike competitor Barclays Plc (BARC), which is preparing to raise 5.8 billion pounds in a rights offering.
“We expect high impairment charges in its commercial real estate loan book to persist for the next two years,” S&P said. “These impairment charges have hindered Nationwide’s internal capital generation.”
The Prudential Regulation Authority is forcing Nationwide to meet a 3 percent leverage ratio, meaning it must hold 3 pounds of equity capital for every 100 pounds of assets, by the end of 2015. Had the lender been forced to meet the target immediately, it would have needed to raise 1.8 billion pounds of capital, Moody’s Investors Service said last month.
Nationwide will meet the PRA’s target by retaining profit, the Swindon, England-based lender said last month. It may also sell core capital deferred shares, which would pay a portion of profit to investors while keeping the firm customer-owned.
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