Nationwide, the UK’s largest mutual, is set to become considerably larger if its bold £2.9 billion move to acquire ailing Virgin Money gets the go–ahead from members.
It will make the building society second only to Lloyds in the UK mortgage market, a position the black horse bank achieved through the more traditional route of a listed bank taking over a building society – Halifax in its case.
Debbie Crosbie, Nationwide’s chief executive, said the deal, to be paid in cash, won’t affect the society’s mutual status.
“Importantly, Nationwide will remain a building society, and 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,” she said.
As part of the takeover, the Virgin Money brand will eventually be phased out with the future of its 91 branches to be decided later.
Nationwide has pledged not to close any of its own 605 branches until 2026.
Receptions to the deal have been mixed, with some analysts saying it is getting Virgin Money cheaply and others that it is biting off more than it can chew.
Gary Greenwood at ShoreCap said: “We had speculated for a while that VMUK was a potential bid target given its persistently low valuation, but wondered whether a trade purchase would be difficult given potential fair value adjustments and the poison pill associated with the Virgin brand agreement.
“In addition, there is significant integration risk for a trade buyer such as Nationwide.
AJ Bell’s Russ Mould suggested it might bolster Nationwide’s mortgage division just as the market is turning up again.
“We’ve seen tentative signs that the property market is regaining strength after a difficult few years,” he said.
"Nationwide is effectively pouncing on Virgin Money at a time when prospects are improving for its industry. Albeit we’re still in a volatile period until the base rate starts to come down."
Crosbie should know the business Nationwide is buying as she was previously at Clydesdale Bank, which merged with Virgin in October 2019 but that has been a troubled pairing, hence the big discount to other banks.
The enlarged Nationwide will have around 24.5 million customers, more than 25,000 staff and nearly 700 branches.
Financially, assets will total £366 billion with a mortgage book of £284 million.
Commentators say the deal is likely to be approved with relief by long-suffering Virgin shareholders.
Richard Branson’s Virgin Group is set to get around £410 million for its 14.5% stake, but how Nationwide’s members feel remains to be tested.
The fiasco over the £100 'bonus' for members that was almost impossible to qualify for still rankles, while Santander’s complaint about Nationwide’s latest ads with Dominic West suggests a newly found aggression that again some might find hard to take.
One Nationwide account holder said: “If it has £3 billion to spare, shouldn’t it be raising savings rates and lowering mortgage costs for its owners.
“Isn’t that the point of a mutual?”