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Nationwide New Share Issuance Plan To Shore Up Its Balance Sheet

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Nationwide is to issue a new type of share to help boost its coffers ahead of new European banking legislation being introduced.

UK lenders are required to strengthen their balance sheets under new rules - which have to be complied with by 2019. From January this year, British lenders will have to disclose their leverage ratio in their financial statements.

Building societies, such as Nationwide, find it more difficult to raise funds as unlike banks, they cannot raise equity on the stock markets.

Currently, building societies can only rebuild capital from retained profits. Permanent Interest Bearing Shares or Pibs were introduced as a way of helping building societies to raise cash, but they do not qualify under new regulations because they are not loss-absorbing.

Financial analysts have argued that building societies should have a less stringent leverage ratio than banks as mortgage lending is less risky than some of the investment operations banks take part in.

Nationwide's new plan, first reported in the Telegraph in May 2012, is to issue core capital deferred shares (CCDS), which are currently untested in the UK market. The instrument was only approved by the Financial Services Authority (FSA) in May, but Nationwide quickly asked its members what they thought and gained a majority approval to use them.

The shares will be issued through sophisticated investment vehicles to institutional shareholders predominantly, although a push for retail investors could not be ruled out at this stage, sources familiar with the situation told Huff Post UK.

No issuance plans have been made yet, but a successful CCDS issue would be a landmark moment for the industry, which has been struggling with strengthening its balance sheets since the financial crisis.

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Filed by Charlie Thomas