Special Resolution 2012

The 2012 AGM Special Resolution

This year we’re asking members to vote on a Special Resolution as part of the Society’s Annual General Meeting (AGM).

Our Board of Directors recommends that you should vote ‘yes’ to the Special Resolution which will approve a change of rules, which it believes is in the best interest of all Nationwide’s members.

Members who are eligible to vote should first read about this in the AGM information they will receive by post or via email from 18 June. There is information in the Chairman’s Welcome Message on page 2 of the Voting Guide and more details on the rule change are on pages 10 and 11 of the Voting Guide.

These website questions and answers are also designed to help members before casting their vote:-

What exactly are you asking members to do, and why?

• We are asking members to approve a new way for the Society to raise extra funds, which when added to the Society’s balance sheet we can refer to as ‘core capital’. This will help keep Nationwide financially strong and help it develop and grow in ways that benefit and protect its members, ensuring that your building society continues to offer a real alternative to the high street banks.

• This move is linked to reforms introduced by governments and financial regulators to improve the ability of the banking sector worldwide to absorb losses in times of financial stress. The reforms set new standards for the amount of capital banks and building societies will need to hold and the quality of core capital.

• As part of these reforms, the ways in which we currently raise capital will be phased out over the next 10 years – these include Permanent Interest Bearing Shares (PIBS) and subordinated debt. So, providing the rule change is approved, in future we will issue investments called Core Capital Deferred Shares (CCDS) that institutional investors may buy.

Does this proposal mean Nationwide is in any financial difficulty?

• Absolutely not. Nationwide continues to be recognised as one of the strongest financial organisations in the UK, financially larger than all the other building societies put together and the main challenger brand to the banks as recognised by the Independent Commission on Banking. We are making good profits, have a very strong balance sheet and our capital ratios are among the strongest of any bank or building society in the UK.

Why can’t you just use profits to maintain and raise capital levels without seeking to introduce Core Capital Deferred Shares?

• While the Bank of England interest rate remains low our profits will not grow in the same way as in the past. We want to ensure we have flexibility going forward to grow the business for our members and to meet the capital requirements.

I have read a press report that Nationwide will be "inviting its members to buy shares in the business". Is this so? How can I buy?

• It is NOT our intention to make CCDS widely and openly available to all members and we will not be issuing an invitation to members to buy. We are taking a responsible approach in not offering CCDS to individual member investors as there are risks associated with this type of investment which inexperienced individual investors may not fully appreciate. Any member interested in buying CCDS, if and when they are issued, should talk to a qualified stockbroker or independent financial advisor who may be able to arrange this.

• As CCDS are designed principally for capital raising using the wholesale money markets they will be sold to institutional investors, on Nationwide's behalf, through investment banks.

Tell me more about why the old way that Nationwide, and other building societies, raised capital via PIBS is no longer appropriate?

• The societies’ existing debt capital instrument PIBS will, over time, no longer be classified as core capital and we therefore need to find other ways to raise capital that are approved by the financial regulators. This new instrument, to be called Core Capital Deferred Shares, will provide us with what we need to meet all the necessary regulatory requirements.

Who do you expect to invest in the Society in this way?

• We expect initial interest from a number of sources but mainly institutional investors who may also have previously invested in Nationwide via PIBS.

How would investors get a financial return?

• Depending on Nationwide’s performance over a financial year, the directors would have discretion to use a percentage of profits earned over that year to pay a distribution to holders of Core Capital Deferred Shares.

• To protect the Society’s overall reserves, the distribution amount will be subject to a cap (or limit) of £15 per share which will be written into the Society’s rules. The cap has been set to an assumed first issue price of £100 per share. This cap will change each year to protect against inflation and this adjustment will be made by referring to the UK’s Consumer Price Index.

Nationwide will have a new form of member to whom distributions are due so does that mean they will have more power over the Society when it comes to voting time?

• Institutional investors (such as pension funds) who hold CCDS will be full members of the Society but each institutional investor will only have one vote, just like all other members, and CCDS holders will only make up a tiny percentage of the voting membership, which is currently around 7.7 million members.

Does it mean Nationwide is moving away from being a mutual organisation?

• No, Nationwide is firmly committed to its mutual roots and mutual values. There is nothing new about external investment in Nationwide and the Board of directors would only sanction any issue of CCDS if it were in the best interests of our current and future members.

What happens to the distribution if you are in a period of reduced profits? Will you still pay out to CCDS investors?

• If the Society were in a period of reduced profits we anticipate that the return paid to investors would be reduced, or could be zero.

• Ordinary members will not be disadvantaged as a consequence and protection will be built into any distribution policy to ensure reserves are not unfairly used to enhance the position of CCDS.

• Our directors will not make any decisions about distributions without considering all member interests, something that they are duty bound to do.

Will CCDS issues be ‘listed’?

• It is currently unclear how the UK Listing Authority (UKLA) (or other EEA equivalents) will treat CCDS for listing purposes but the intention is to list under the equity shares regime.

Will I be able to get access to buy CCDS via brokers in a similar way to PIBS?

• CCDS will be traded in the financial markets but it is unclear at this stage whether private stockbrokers will be able to gain access to them. Once CCDS have been issued you should talk with your stockbroker or independent financial adviser.

How many votes do you need in order to pass the Special Resolution?

• The Special Resolution for a change in the rules needs the support of 75% of the members who take part in the vote.

Is there information anywhere else?

• For PIBS holders and existing investors Nationwide has an Investor Relations team. More details can be found at nationwide.co.uk/investorrelations or call 0845 602 9053.

For more information on the AGM go to nationwide.co.uk/agm or call 08457 30 20 15.