Interim Results Announcement for the six months ended 4 October 2004

Interim Results press release
Market overview pdf (69KB)

Contents

Highlights
Business and financial review
Summary of results
Consolidated income and expenditure account
Consolidated balance sheet
Consolidated statement of total recognised gains and losses
Consolidated cash flow statement
Notes to the interim results announcement
Independent review report
Other information
Contacts

Highlights

Nationwide has produced another very strong set of results for the half year ending 4 October 2004 demonstrating that a well managed 'modern mutual' can deliver real value to its membership and make an impact in the financial services market place. Profit before taxation was £244.9m, an increase of 30.0% over the corresponding period to 4 October 2003 of £188.4m.

We have been successful across a wide range of financial services products but it is in the mortgage arena where performance has been especially strong. Consistent with last year, net lending of £7.4bn in the half year exceeded par share by £2.8bn representing over 13.7% of net lending in the UK (4 October 2003 - £7.5bn net lending representing 15.0% of market).

Our retail savings balances also increased by £3.6bn in the half year (4 October 2003 - £2.1bn) - a market share of 9.3% against a par share of 8.0%.

Nationwide's strategy is to deliver value to its membership by providing financial services products with competitive interest rates and lower fees and charges, underpinned by policies of fairness, honesty and transparency as befits the world's largest building society. Compared with a portfolio of similar products provided by our competitors, our pricing policy is estimated to have generated a pricing benefit to members equivalent to £300m in the half year. Retained earnings for the half year were £172m (4 October 2003 - £140m) which, combined with the pricing benefits, generated total Member Value of £472m (4 October 2003 - £412m).

We also continued to invest in our infrastructure and people. In July, we were recognised as an exemplar organisation by Investors in People - the Society is one of only 16 companies to achieve this and is the only financial services company.

Indications are that the housing market has slowed in recent months - both in terms of activity and price growth. However, we remain confident in our ability to grow and to continue to add value to our membership and, consistent with the first half of the financial year we will aim to exceed our par share of net lending for the second half.

"Exceptional performance supporting growth"

Financial

• profit before tax was up 30.0% to £244.9m (4 October 2003 - £188.4m)
• retained earnings up 23.0% to £172.4m (4 October 2003 - £140.2m)
• total capital rose to £6.4bn (4 April 2004 - £6.2bn)
• capital ratios remained strong with total solvency at 11.2% and tier 1 solvency at 8.9%

Member value

• members pricing benefits equivalent to £300m (4 October 2003 - £272m)
• over £300m is to be invested over the next 6 years to improve all customer access via branch, internet and telephone

"Nationwide franchise gets stronger and deeper"

Mortgages

• net lending of £7.4bn representing a market share of 13.7% (4 October 2003 - £7.5bn, 15.0%)
• gross mortgage advances of £13.7bn representing a market share of 8.7% (4 October 2003 - £12.3bn, 8.7%)
• 6.3% market share of principal repaid in the half year was well below our par share of 8.6% (4 October 2003 - 5.7% market share against par share 7.9%)

Savings

• 9.3% market share of the overall increase in retail savings (4 October 2003 - 5.4%)
• balances increased by £3.6bn to £69.5bn from £65.9bn at 4 April 2004

Banking & Consumer Lending

• gross personal loan lending in the half year increased by 37% to £542m (4 October 2003 £397m)
• credit card accounts up 14% at 742,000 (4 April 2004 - 653,000)
• number of current accounts opened in the period 291,000 (4 October 2003 - 248,000)

General Insurance

• total covers of around 1.6m, in line with 4 April 2004 position

Life

• net equity ISA sales of 3.8% of the market against a par share of 3.1%

Commercial Lending

• gross advances of £2.0bn (4 October 2003 - £1.8bn), a growth of 13.5%

Chief Executive's Review

Philip Williamson, Chief Executive, said: "Our performance in the first half of the year has once again been first-class. We have made record profits whilst also delivering the highest ever level of pricing benefits to our members. In our core markets of mortgages, retail savings and banking services we continue to punch well above our weight.

Great value financial services delivered with fairness, honesty and transparency have attracted strong new business volumes whilst encouraging high levels of customer retention. Consequently, we have seen mortgage growth of £7.4bn, a market share of 13.7% - well above the Society's par share of 8.6%.

In the highly competitive savings market our 9.3% share of growth in retail savings is an excellent performance. Our very attractive savings rates have led to a £3.6bn increase in deposits with some 70,000 loyal members taking advantage of our market leading Members' Summer Bond. We have also done exceptionally well in the current account and personal loan markets.

However, we have no plans to rest on our laurels. To provide further benefits to our members we have commenced a £300m investment programme, which will result in improved access and enhanced service standards at our branches, call centres and to our online customers. Our investment in a new call centre in Sheffield underlines our commitment to keep our service offerings firmly based in the UK. Even though we are making a significant investment in our future, we have maintained our disciplined approach to cost management with our efficiency measures looking set to improve for the 16th successive year.

Relative to our major competitors, we estimate our members have benefited to the tune of around £300m during the last six months. This is as a result of our better interest rates and lower fees and charges. During the same period they have seen their reserves increase by over £170m. This shows that a modern, well run mutual is proving to be a very popular first choice for millions and millions of people."

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Business And Financial Review

Nationwide has continued to achieve its strategic goals of delivering value to its membership whilst retaining sufficient profit to support continued investment in the Society and the future growth of its business. Our success in delivering a competitive range of financial services products enabled us to increase total assets by 6.3% from £101.4bn at 4 April 2004 to £107.8bn at the half year and generated a profit before tax of £244.9m (4 October 2003 - £188.4m).

During the first half of the year we delivered over £300m in the form of pricing benefit to our members by offering better rates and by charging lower fees and charges than our competitors. Over the medium term we aim to fund our growth through retained profits. In the first half of the year we retained £172.4m, an increase of 23.0% on the same period last year, to support the growth in our balance sheet. We also invested in our infrastructure and in our people to develop a modern business.

Our member base grew by 235,000 over the half year to 11.2m. Our members' crossholdings of product groups improved to 1.72 from 1.70 at 4 April 2004.

We have continued to develop our distribution channels and this has been a major factor in achieving an above par share of net mortgage lending. The strength of Nationwide's retail franchise is key to our strategy and we are undertaking a £300m investment programme over the next 6 years to ensure that our branch, telephone and other access channel infrastructures are maintained at the modern standards expected by our members.

Mortgages

The Nationwide Group continued its strong performance in the mortgage market achieving £7.4bn of net lending in the first half of 2004/05 (4 October 2003 - £7.5bn), representing a market share of 13.7% (4 October 2003 - 15.0%) against a par market share of 8.6%. We maintain our position as the 4th biggest mortgage provider in the UK.

• the UK continued to experience a strong demand for mortgages driven by the housing market during the start of the year, with increased turnover and house price inflation. Competition also remained robust, with re-mortgaging accounting for 40% of gross lending in the first half of 2004/05. Overall recorded gross lending in the market amounted to £156.6bn; an increase of 11% over the same period a year ago
• group gross lending was £13.7bn (4 October 2003 - £12.3bn), an estimated market share of 8.7%. The Group was particularly successful in attracting re-mortgage business, gaining an estimated share of 10.8% of the re-mortgage market
• we were highly successful in retaining borrowers. This excellent performance was partly driven by our policy of charging circa 0.5% to 0.6% less interest on our standard variable rate mortgage compared with our competitors. Good service and an active policy of customer contact also helped us to retain borrowers with maturing fixed rate and tracker rate mortgage products. Our 6.3% market share of principal repaid in the Group was well below our mortgage par share of 8.6%. We estimate this excellent retention performance contributed £2.8bn to our total net mortgage lending in the first half of 2004/05
• UCB Home Loans (UCBHL), the Society's specialist mortgage lender, recorded a strong first half performance with gross mortgage advances of over £1.0bn (4 October 2003 - £1.0bn). UCBHL's asset base exceeded £5bn for the first time during the half year. UCBHL deals mainly with self certified mortgages, for borrowers who find it difficult to obtain loans from mainstream lenders, and with Buy to Let applications

We provide a comprehensive range of very competitive mortgage products both directly, through branches, over the phone and via the Internet, and through intermediaries. Unlike the majority of other lenders all of our mortgage products are available both to existing and new customers.

Asset quality remains very strong. Our responsible approach to lending has ensured that our arrears levels are significantly better than the industry average.

The average loan to value (LTV) of new residential mortgage lending was 53%, while the estimated LTV of our total book is 36%.

Mortgage arrears (3 months or more) reduced by 6.6% from £7.6m at 4 April 2004 to £7.1m at 4 October 2004. The percentage of mortgage cases 3 months or more in arrears at 4 October 2004 was 0.29% (4 April 2004 - 0.35%).

At 4 October 2004 we had only 60 properties in possession (4 April 2004 - 56) out of a total of c1.2 million mortgage cases.

Savings

The competition for retail funds remained keen during the half year amongst savings providers. However, with competitive pricing, we achieved a 9.3% share of the overall increase in UK retail savings (4 October 2003 - 5.4%), representing £3.6bn (4 October 2003 - £2.1bn). Total retail member deposits as at 4 October 2004 amounted to £69.5bn (4 April 2004 - £65.9bn).

The great majority of our retail funding is in the form of UK retail member deposits. In addition, we accept offshore deposits and deposits which do not convey member status. We are the second largest high street deposit taker in the UK and interest rates on our savings accounts were, on average, 0.45% higher than those of our competitors.

Strong savings flows were primarily driven by our e-Savings, ISA and fixed rate bond products. We also launched a special Summer Bond as a loyalty product available only to existing members. This was at a fixed rate of 6.0% and attracted £360m of deposits.

Banking & consumer lending - personal loans

Personal loans are offered through the Society's personal loans subsidiary, Nationwide Trust Limited. Gross unsecured advances amounted to £542m (4 October 2003 - £397m), driven by our strategy of offering competitive pricing with a single rate available to all borrowers irrespective of sales channel or the amount borrowed. Loans are sold through our retail network, over the telephone and via the internet. Nationwide Trust has in excess of 250,000 unsecured personal loan customers.

Growth in the unsecured lending market remains robust, with the first half seeing total net lending of £11.4bn compared with £11.0bn in the same period a year ago. A slowdown is expected in the next six months as consumers become a little more cautious in the face of higher interest rates. Whilst for most debt levels are sustainable there is clearly a responsibility on lenders to apply prudent criteria and make sensible lending decisions. As always individuals also need to be realistic about how much debt they can afford.

We adopt a cautious approach to all of our lending activities, particularly unsecured lending. We continued to reject almost one in two of unsecured loan applications received and our credit assessment process includes looking at the impact of an assumed increase in interest rates to determine a borrower's ability to service their debt in more difficult economic conditions.

Banking & consumer lending - credit cards

We issued 114,000 new credit card accounts in the first six months of 2004/05 (4 October 2003 - 121,000) taking total accounts to 742,000 (4 April 2004 - 653,000). Balances outstanding on credit cards as at 4 October 2004 amounted to £533m (4 April 2004 - £471m), exceeding £500m for the first time in August 2004.

Banking & consumer lending - current accounts

The Society's current account, FlexAccount, is a key product in developing and retaining customer relationships. We offer a highly competitive account with a range of good value features including up to 3.0% credit interest.

The Society had a strong first half in terms of gross new accounts with 291,000 new FlexAccounts opened (4 October 2003 - 248,000) taking the total number of accounts held to 2.9m.

General insurance

Our insurance business provides us with an important source of non-interest income and in the first half of 2004/05 we earned £34.7m (4 October 2003 - £33.5m) from commission and profit share.

Over 218,000 general insurance covers were sold during the first half year bringing our general insurance book to circa 1.6m covers as at 4 October 2004.

Life insurance and investment products

We have both a Life and Unit Trust company through which we write a range of life and investment products. Within this we underwrite two main types of protection product; term life assurance and critical illness cover and provide our customers with a range of personal investment products including unit trust, pension contracts, guaranteed equity bonds and equity individual savings accounts (ISAs).

It has been a difficult time for the long term savings and protection markets. We issued over 72,000 life and investment products during the half year representing a 11% decrease over the same period last year (4 October 2003 - 81,000 products). However, we achieved a 3.8% market share of net equity ISA sales, against a par share of 3.1% (4 October 2003 - 3.2% market share against a par share of 3.0%).

Our life insurance subsidiary is consolidated in the Group using the embedded value method. The change in the value of the long term life assurance business is included within other operating income. At the half year, the embedded value contribution was £20.6 m (4 October 2003 - £18.6 m).

Commercial lending

Commercial loans accounted for 14% of our total loan portfolio as at 4 October 2004, with balances outstanding of £12.6bn (4 April 2004 - £12.1bn). Gross advances of £2.0bn reflected strong performance in all three business units which deal with loans:

• to U.K. registered social landlords secured on residential property
• secured on commercial property
• to support Private Finance Initiatives

Asset quality remains strong. Commercial lending arrears balances of three months or more have reduced to £2.7m (4 April 2004 - £3.5m ) and represent 0.02% of the book. The number of cases has reduced to 82 from 87 over the period.

We are one of the largest lenders to U.K. registered social landlords by amount of assets lent. The number of registered social landlords continued to increase during the year, as local government transfer their municipal housing stocks to private organisations.

Private Finance Initiative (PFI) schemes are being used to fund improvements to local authority housing stock and the development of new social housing, as well as for other initiatives such as the development of new schools and hospitals. Nationwide continues to establish itself as a major player in this emerging market.

Treasury

At 4 October 2004, wholesale balances stood at £29.1bn (4 April 2004 - £ 26.8bn) representing a funding ratio of 29.6% (4 April 2004 - 28.9%). During the half year the Society has enjoyed a strong appetite from wholesale funding investors, with the Society both replacing maturing funds and raising new finance through operating successful Medium Term Note (MTN) programmes in the Dollar, Euro and Sterling markets.

Liquidity balances totalled £15.5bn at 4 October 2004 (4 April 2004 - £17.4bn) representing 15.8% of shares and borrowings. Liquidity balances have reduced during the half year following a review of liquidity requirements within the business. This has reduced the requirement for wholesale funding within the business, increasing profitability.

Profit

Profit before tax amounted to £244.9m (4 October 2003 - £188.4m), an increase of 30.0%. Profit after taxation was £172.4m (4 October 2003 - £140.2m) an increase of 23.0%. The increase in profit is consistent with the Society's strategy of moving to a level of retained earnings that supports the growth in the Balance Sheet.

Pricing benefit

The pricing benefit we generate for our members is calculated by comparing the price of each of our products (including interest rates, fees and charges) with the equivalent products of our main competitors.

The benefit to borrowers has remained largely unchanged from the same period last year with the benefit derived from fixed and tracker products together with a narrower differential to the market on variable rates. The benefit to savers has continued the strong performance experienced in the second half of last year largely the result of an increased differential to the market on e-savings and ISA products following the November 2003 base rate increase. Other products have also contributed strongly to the pricing benefit in the first half year mainly due to the competitiveness of rates on FlexAccount and the fact that we do not apply a charge when our members withdraw cash or make purchases on their credit card while abroad.

Net interest income

Group net interest income of £604.4m was £67.9m or 12.7% higher than in the six months to 4 October 2003. However, the net interest margin for the half year fell to 1.16% from 1.20% for the same period last year. This was the consequence of competition causing continuing downward pressure on the spread between savings and lending rates and the popularity of lower margin fixed and tracker mortgage products, for both new and re-mortgage business, and higher rated e-savings and ISA accounts. The continuing fall in the proportion of mortgage balances paying standard variable rates in relation to the proportion of variable rated savings has also reduced the beneficial impact of rate rises over the period. This was partially offset by the rise in Base Rate and Libor over the first half of the year which had a beneficial impact on interest income generated from assets backing reserves.

Non-interest income

Group non-interest income increased by £23.6m, or 21.5% to £133.4m over the half year (4 October 2003 - £109.8m). Fees receivable from lending activity were the main driver, particularly higher mortgage reservation fees reflecting both increases in the level of fee charged in the period, in line with market movements, and higher volumes of fixed and tracker rate business.

With the continued high proportion of lending business introduced through intermediaries (58% in the six months to 4 October 2004 compared with 50% for the same period last year) the cost of securing this business through procuration fees, survey fees paid and incentives increased to £66.3m (4 October 2003 - £62.0m).

Administrative expenses and depreciation

Total administrative expenses and depreciation increased by £21.3m, or 5.0%, to £448.4m (4 October 2003 - £427.1m). There is an ongoing focus on managing the Society's cost base and improving efficiency; performance in the first half year compares favourably with expectations. This is despite a background of a strong growth in new business and a significantly increased pension charge. As a result there have been improvements in the cost to income and cost to mean total assets ratios as set out below.

Administration and depreciation costs comprise:

The increase in employee costs of £15.6m primarily results from the pension charge increasing by £15.2m to £39.7m for the six months to 4 October 2004 compared with £24.5m for the same period last year. The increase is based on an actuarial assessment of the pension fund as at 31 March 2004.

Provision for bad and doubtful debts

The total charge for bad and doubtful debts decreased by £9.9m to £20.1m (4 October 2003 - £30.0m). The decrease is primarily due to a £15.4m reduction in the general provision charge for the residential and commercial lending books reflecting book quality and arrears performance. This has been offset by a £3.6m increase in the specific provision against unsecured lending.

Provisions for contingent liabilities and commitments

Like many other distributors of savings and investment products, Nationwide is facing an increasing level of concern on the part of current and former members and customers about the value of some of their life assurance products and investment policies, particularly endowment policies sold principally before 1990 by the Society, intended as repayment vehicles for mortgage borrowings. Against a background of falling investment returns it is possible that the value of some investment policies will not be sufficient to fully repay mortgages on maturity. Complaints from members, who claim they did not appreciate this risk, are reviewed on an individual basis and with reference to the circumstances prevailing at the date the policies were sold. In some cases this gives rise to the payment of compensation to put the borrower in the equivalent position as if the mortgage had been written on capital repayment terms.

In the period to 4 October 2004, an additional provision of £20.0m (2003/04 - £34.1m) was raised for the cost of customer redress relating to current and potential future endowment review claims. In line with our prudent approach, this increase is based on current trend and investment performance.

Provision has also been made for the cost of loyalty benefits accruing to investors in certain unit trust products that will crystallise on the 10th anniversaries of the sale of the products from 2006 onwards.

Amounts written off fixed asset investments

Continuing improvements in the underlying market value of the majority of the investment asset portfolio, which consists of corporate bonds and asset backed securities, has resulted in a further £1.3m release in the specific provision. However, based on our cautious approach to provisioning, there has been a small general provision charge against a small number of sub-investment graded assets.

Taxation

The effective rate of tax was 29.6% (4 October 2003 - 25.6%), compared with the standard rate of corporation tax of 30%. Nationwide continues to carry out its activities and structures its business in a tax efficient manner and this is reflected in the Group tax charge.

Capital

Total capital stood at £6.4bn (4 April 2004 - £6.2bn) with the Group's total solvency ratio remaining strong at 11.2% (4 April 2004 - 11.7% ). The Tier 1 solvency ratio stands at 8.9% (4 April 2004 - 9.3%). The Group's solvency ratios are well in excess of the minimum established by the Society's regulator.

There was, and remains, substantial appetite for our credit in the European and US markets. The work undertaken in recent years in developing these sources of funds has proved highly beneficial in enabling the Group to raise the required wholesale funding and additional capital at an attractive rate.

Regulation

As a mutual organisation our strategy and policies are designed to put our members first, to maintain our financial strength and to safeguard our assets. We aim to maintain a relatively low risk profile and to comply fully with all relevant rules and regulations.

A key theme of our regulator is "treating customers fairly" and we strive to ensure that we remain ahead of our competitors in this regard. In particular, we welcome the introduction of new regulation of mortgages from 31 October 2004 and we were fully compliant from that date. In this regard we won the Financial Adviser Sales Awards 2004 Best in House Training Programme for our preparation for mortgage regulations. We also welcome the new regulation of general insurance early in 2005 and again anticipate being fully compliant.

International Accounting Standards (IAS)

The Group, in common with other listed institutions in the European Union, is required to prepare its Annual Report and Accounts under International Financial Reporting Standards (also referred to as International Accounting Standards) for accounting periods commencing on or after 1 January 2005.

We are making good progress in our preparation to produce IAS compliant accounts. Over the last few months the Group has moved from the planning and development phase of the project to the delivery of the systems, processes and reporting changes to be fully compliant.

At this stage, it is still not possible to determine the exact effect on our results due to the nature of the standards themselves, particularly the greater use of fair values, and the uncertainty over the final form and application of IAS 39 on financial instruments. In addition, the taxation and capital treatment of potential changes will affect both the financial statements and capital management. On capital management, the Financial Services Authority issued a Consultation Paper at the end of October 2004 proposing to keep to a minimum the changes in its regulatory accounting rules. One of the changes proposed is to eliminate the accounting measure of actuarial loss and replace it with a company's best estimate of the level of additional funding it will need to provide for its pension scheme over the next five years. The other proposals are in respect of IAS 39 on cash flow hedging, available for sale assets and own credit risk. We are currently assessing the impact of these proposals. The taxation position remains to be finalised by HM Revenue and Customs.

The new standards, particularly those relating to hedge accounting, are likely to result in increased volatility of reported earnings even though the overall underlying cash flows will remain the same. Our objective will be to maintain effective economic hedging positions whilst at the same time minimising volatility to earnings.

The appearance of our accounts will also change to some extent and we may be required to consolidate our life assurance business on a line by line basis instead of the one line basis of consolidation currently adopted.

Basel 2

We are making significant investment to ensure that we are compliant with the Basel 2 Capital Accord when it is introduced in 2007. On-going work includes the development of risk management systems that will form the core element of our future risk reporting.

We believe the composition of our business and the quality of our asset base will lead to Nationwide potentially benefiting from a lower regulatory capital requirement under the new regime subject to stances to be taken by the Financial Services Authority and rating agencies.

Outlook

Indications are that the housing market has slowed significantly in recent months - both in terms of activity and price growth - as a result of higher interest rates, subdued real take home pay growth and a moderation of buyer's expectations of future house price growth. We expect annual house price inflation to slow to around 0-5% over the medium term. Equity withdrawal will also become more subdued, although re-mortgage activity will remain strong. In 2004/5 our target remains to exceed our par share of net lending. However, given our prediction of the slowdown in the marketplace, we expect a reduction in net lending in absolute terms from the level achieved in 2003/4.

The savings market will remain relatively strong buoyed by continuing uncertainty over the strength of the recovery in equity prices. However, some downward pressure on net receipts growth is likely to result from the slowdown in housing market equity withdrawal, as fewer people trade down. Competition will remain strong from lenders who need to raise their share of retail funding to support their net mortgage lending.

The combined competition in the mortgage and savings markets will continue to put downward pressure on interest margins. We expect the Bank of England Base Rate to remain in a range between 4.75% and 5.0% throughout 2005. Libor is likely to remain above the base rate for a number of months, helping to mitigate some of the margin squeeze.

We will work hard to deliver another set of excellent results with strong performance in all of our key markets, further improvement in our efficiency and stringent control over asset quality. This should lead to the delivery of increased profits while maintaining substantial pricing benefits for our members.

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Summary Of Results

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Consolidated Income And Expenditure Account

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Consolidated Balance Sheet At 4 October 2004

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Consolidated Statement of Total Recognised Gains and Losses For the period ended 4 October 2004

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Consolidated Cash Flow Statement For the period ended 4 October 2004

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Notes To The Interim Results Announcement

Loans fully secured on land include £819.0 million (4 October 2003 - £897.3 million, 4 April 2004- £849.8 million) of loans which are fully secured on residential property but are classified as 'loans fully secured on land' in accordance with the requirements of the Building Societies Act 1997.

Valuations of fixed assets and properties held for rental have been brought forward, without amendment, from 4 April 2004.

The general reserve includes £85.9 million (4 October 2003 - £75.5 million, 4 April 2004 - £79.0 million) of unrealised profit in respect of the increase in the value of the Group's long term life assurance business.

Retail represents the provision of personal financial services including all the attributable income and expenditure relating to retail mortgages, unsecured and secured personal lending, credit card, insurance products and FlexAccount. Nationwide's strategy of better pricing means that retail profit contribution is intentionally reduced.

Commercial includes all of the costs and income associated with the Group's lending to Registered Social Landlords and other loans to support investment in commercial properties and residential housing.

Group includes the costs and income associated with managing the Group's capital position, fixed asset investment portfolio, wholesale funding and the liquid asset management of the Group.

Administrative expenses and depreciation have been allocated to segments based on resources consumed except where they cannot be meaningfully allocated in which case they are included within Group items. Group items include rental income and associated property costs plus the core Group administrative expenses that have not been allocated to business segments.

Capital is allocated to each business segment for investment purposes and is based upon the regulatory capital framework. No charge has been made for capital.

12 Basis of Preparation

The accounting policies used in preparing these Interim Results are consistent with those set out in the Annual Accounts to 4 April 2004.

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Independent Review Report to Nationwide Building Society

Introduction

We have been instructed by the Society to review the financial information which comprises the income and expenditure account, the balance sheet, the cash flow statement, the total recognised gains and losses and the related notes for the six months ended 4 October 2004 and we have read the other information contained in the Interim Results Announcement for any apparent misstatements or material inconsistencies with the financial information.

Directors' responsibilities

The Interim Results Announcement, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4 "Review of interim financial information" issued by the Auditing Practices Board. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. This report has been prepared for and only for the Society for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Review conclusion

On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 4 October 2004.

17 November 2004

PricewaterhouseCoopers LLP
Chartered Accountants
London

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Other Information

The interim financial information set out in this announcement is unaudited and does not constitute accounts within the meaning of section 73 of the Building Societies Act 1986.

The financial information for the year ended 4 April 2004 has been extracted from the Annual Accounts for that year. The Annual Accounts for the year ended 4 April 2004 have been filed with the Financial Services Authority and Registry of Friendly Societies in England and Wales. The Auditors' Report on these Annual Accounts was unqualified.

An advertisement detailing where copies of this Interim Results Announcement can be obtained will appear in the Financial Times on 19 November 2004. This announcement will also be available on the Nationwide Building Society website, www.nationwide.co.uk, from 18 November 2004.

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Contacts

Media

Alan Oliver
01793 655196
07850 810745 (mobile)
alanm.oliver@nationwide.co.uk

Jennifer Williams
01793 655203
07715 546275 (mobile)
jennifer.williams@nationwide.co.uk

City

Graham Beale
Group Finance Director
01793 655340
graham.beale@nationwide.co.uk

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