07 March 2024 , 14:18
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What does Nationwide's move to take over Virgin Money mean for UK banking?
Nationwide Building Society has surprised everyone with a proposed £2.9 billion takeover of smaller rival Virgin Money. This will make Nationwide a big playerer in the mortgage and savings market. Let's look at why this deal might happen and what it means for people who use banks.
- What does this mean for UK banking?
The planned takeover will join together Britain's fifth and sixth biggest retail lenders. This would create a group with about 24.5 million customers, more than 25,000 staff and nearly 700 branches. This would give Nationwide more power to compete with its big four banking rivals Lloyds, NatWest, HSBC and Santander.
Together, Nationwide and Virgin Money would have total assets of more than £366 billion and lending and advances of about £283.5 billion. This would make the merged group the second biggest provider of mortgages and savings in the UK.
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- What will happen to the Virgin Money brand?
The Virgin Money brand is set to eventually disappear from UK high streets. Nationwide said it would keep the Virgin Money brand at first, but revealed it plans to change the business name to Nationwide within six years once the proposed takeover is done. The deal that will see the listed bank taken private. The move will reduce the number of banking brands available to customers and remove another company from the London stock market.
Nationwide said the deal would help it to "accelerate its strategy and broaden and deepen its products and services faster than could be achieved organically". Virgin Money said becoming part of Nationwide "would expand our customer offering and complete our journey in the banking sector as a national competitor".
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "A mutual taking over a listed bank is a rare move, but Nationwide clearly does not 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," she added.
Virgin Money's shares have been struggling in recent months, giving Nationwide "an opportunity to snap up an undervalued asset", said Victoria Scholar of interactive investor. "Virgin Money has also struggled from a financial perspective with a slump in full-year profit reported last November resulting in a series of downgrades from the analyst community," she added.
Last month, Virgin Money reported a fall in mortgage lending amid a slowdown in the housing market, with home loans down 2.2% to £57.1 billion in the final three months of 2023.
How will the deal affect staff?
Nationwide has around 18,000 employees and Virgin Money has about 7,300 staff. Nationwide said it does not intend to make any "material changes" to the size of Virgin Money's workforce "in the near term". But it is unclear what will happen further out or what cost savings the pair will look to make after joining forces.
What will it mean for branches?
Nationwide said it would keep a branch in each location where the combined group is present, until at least the start of 2026 and "values Virgin Money's ongoing presence in Glasgow and Newcastle".
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Virgin Money has 91 branches, which has been scaled back significantly in recent years after a series of closures due to the shift towards online banking. Nationwide is Britain's biggest building society with 605 branches and claims to have the UK's single largest network of branches.
What will it mean for Nationwide's status as a mutual?
It has stressed that it will remain a mutual building society if the deal goes ahead and is given the green light by Virgin Money's shareholders and Nationwide's members. "Does this start the gun on more deals among UK banks? " This is what experts are asking after a recent takeover. They believe it could lead to more deals among smaller players.
Gary Greenwood, from Shore Capital, said: "This does underscore that there is value in the sector and that smaller banks on low valuation multiples are vulnerable to such approaches."