Credit Suisse has cut its estimates for Nationwide Financial Services (NFS) after a dismal Q1 in which the financial services company reported earnings from continuing operations of $0.95 on $916.3 million in revenue, well short of the $1.11 and $1.17 billion consensus. The miss was largely attributed to a deterioration in commercial mortgage spreads.
We are lowering our 2008 estimate by 5 cents to $4.70 to account for the lower core run rate… As we have witnessed with other insurers, NFS’s net investment income (NII) was suppressed by poor alternative investment performance ($10m below normalized levels) and low bond prepayment activity ($2m below).
The corporate segment produced the biggest delta to our estimates ($9m est. vs. -$14m reported). The main culprit was the continued deterioration in commercial mortgage spreads, which produced $17m of MTM losses on the $160m of CRE loans they are warehousing. While synthetic spreads have come in since the quarter end, they still remain at highly elevated levels; therefore we believe this inventory is still under water.
NFS’ poor quarter is not expected to effect its potential deal with Nationwide Mutual.