Nationwide has insisted its takeover of Virgin Money will make it financially more resilient after experts said the deal could initially weaken the mutual’s balance sheet.
The building society agreed a £2.9billion deal last week to buy the challenger bank and create Britain’s second biggest savings and loans group. The tie-up is Debbie Crosbie’s boldest move since she became the mutual’s boss in 2022.
She said the takeover ‘strengthens Nationwide and means we can offer more value and broader services for our members’. Nationwide also says it would ‘create a combined group with enhanced financial strength,’ with access to new sources of funding.
But an analysis of Nationwide’s balance sheet after swallowing Virgin Money shows it would be in a weaker position.
Nationwide says a key measure of financial strength, known as common equity tier one capital, would be around 20 per cent after the takeover. That’s still high compared to other big banks but lower than the 27 per cent Nationwide reported last year.
Tie-up: Analysis of Nationwide’s balance sheet after swallowing Virgin Money shows it would be in a weaker position
Another important indicator, the leverage ratio, would also be weakened by Nationwide taking on Virgin Money. ‘This is a strong bank buying a weaker bank on the assumption that better management will drive up returns,’ banking expert Philip Augur said.
‘Maybe it will but the protracted period of integration will stretch management,’ he added. Nationwide plans a softly-softly approach to bedding in Virgin Money. It will run both brands with separate banking licences ‘in the medium term’ but does not expect to make sweeping job cuts at Virgin Money in the first year after the deal completes.
Nationwide has also extended its promise to keep all its branches open by two years to 2028, including Virgin Money’s 91 outlets.
Sir Richard Branson’s Virgin Group will pocket more than £400million in the deal for its 14.5 per cent stake. Virgin Money, which was bought by Clydesdale & Yorkshire Banking Group for £1.7billion in 2018, will pay a £250million exit fee to the Virgin Group to stop using its name in four years’ time. The bank will also pay the Virgin Group £15million a year while it continues to do so.
The lender faces calls from some of its members for a vote on the Virgin deal. But Nationwide says a vote – which would take time – could derail the deal under City takeover rules.
Fewer than half (49 per cent) of 156 members polled by YouGov felt positive about the deal, though only six per cent said they felt negative.
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