Nationwide challenges UK's big banks with US$3.7 billion Virgin Money bid

BRITAIN’S Nationwide Building Society has agreed to purchase Virgin Money UK in a possible US$3.7 billion all-cash deal to create the nation’s second-largest financial savings and mortgage supplier.

The proposed deal is the most recent instance of a bounce in merger and acquisition exercise amongst British lenders, with some looking for to bolster their stability sheets towards a doable bump in unhealthy loans as households and companies face a recession.

Barclays mentioned final month it might purchase the banking operations of grocery store group Tesco for about £600 million (S$1.02 billion) and a few analysts mentioned the Nationwide’s transfer may immediate offers by others trying to protect market share.

Nationwide mentioned its supply of 220 pence (S$3.76) per Virgin Money share represented a premium of 38 per cent as of March 6 and can be funded by means of the mutual’s current money assets.

Virgin Money’s shares have been up 36 per cent to 217 pence at 1242 GMT, and have been set for his or her largest at some point acquire since its preliminary public providing (IPO).

Richard Branson’s Virgin Group Holdings, which based Virgin Money and which holds round 14.5 per cent of its complete shares in situation, has additionally indicated assist for the deal.

Analysts mentioned the transaction may enhance competitors in Britain’s mortgage and financial savings market and spur a revival in some financial institution shares, which have wilted within the face of geopolitical tensions and lacklustre financial progress.

“With the outlook for the UK economy stabilising, we wouldn’t be surprised to see more deals like this,” RBC Capital Markets analyst Benjamin Toms informed Reuters.

“UK bank valuations are relatively cheap for the sustainable returns they offer,” Toms added.

Nationwide, which describes itself because the world’s largest constructing society, itself a product of a number of takeovers and mergers, would stay a mutually owned lender below the phrases of the supply, which stays topic to situations.

It holds nearly £1-in-£10 saved in Britain, in addition to one in ten of the UK’s present accounts. It has greater than 17 million clients and employs greater than 16,000 individuals.

Virgin Money is the UK’s sixth-largest retail financial institution by belongings and has round 6.6 million clients, with complete lending of £72.8 billion together with round £57.1 billion in mortgages.

Its board mentioned it had fastidiously evaluated the Nationwide deal and was prone to suggest it to shareholders.

Nationwide mentioned the deal would permit it to supply a wider vary of services and construct its monetary power.

It at the moment operates Britain’s largest single-brand excessive avenue department community, spanning greater than 60 shops, and mentioned it intends to retain a department all over the place the place the mixed group is current, till at the very least the beginning of 2026.

Most different main UK banks have slashed branches in a bid to avoid wasting prices, citing the rising reputation of on-line banking.

“A combined group would bring the benefits of fairer banking and mutual ownership to more people in the UK, including our continuing commitment to retain existing branches,” Nationwide CEO Debbie Crosbie mentioned.

If the deal goes forward as introduced, the brand new entity would have belongings of roughly £366.3 billion, with lending and advances of round £283.5 billion.

Nationwide mentioned it didn’t intend to make any materials close to time period adjustments to the dimensions of Virgin Money’s 7,300-strong workforce within the close to time period.

“A mutual taking over a listed bank is a rare move but Nationwide clearly doesn’t want to be stuck in the past and wants the know-how and access to scoop up future customers who demand more cutting edge financial services,” mentioned Susannah Streeter, head of cash and markets at Hargreaves Lansdown.

Virgin Money CEO David Duffy mentioned the deal would “complete our journey in the banking sector as a national competitor”.

Nationwide mentioned it might search to combine Virgin Money progressively over a number of years, however within the medium time period the financial institution would proceed to function as a separate authorized entity with a separate board of administrators and banking licence.

Virgin Money’s £9 billion in enterprise lending would allow Nationwide to construct on its current enterprise financial savings enterprise and diversify its funding sources, Nationwide mentioned. REUTERS