7 Mar, 2024
Nationwide-Virgin Money bank deal, UK's biggest since 2008, to shake up market
|
Nationwide's market share for mortgages would jump to 15.7% from 12.2%, according to RBC Capital Markets analysts. |
Nationwide Building Society's takeover of Virgin Money UK PLC, the biggest UK bank deal since 2008, is poised to shake up the dominance of large UK banks by boosting competition, particularly in savings and mortgages.
The proposed deal, whereby Nationwide would pay 220 pence per Virgin Money share, would create the sixth-largest lender in the country, overtaking Santander UK Group Holdings PLC, according to S&P Global Market Intelligence data.
The combined group would hold total lending and advances of some £283.5 billion and become the second-largest provider of mortgages and savings in the UK, Nationwide and Virgin Money said in a joint statement.
Nationwide's market share for mortgages would jump to 15.7% from 12.2%, according to RBC Capital Markets analysts. Its share of unsecured lending and deposits would increase to 8.6% and 12.9%, respectively, from 3.2% and 9.6%.
Competition for mortgages in the UK has heated up in recent months as lenders have lowered rates on expectations that the Bank of England would begin easing monetary policy. The Building Societies Association also recently called for regulatory reforms to allow mortgages to be more flexible.
A combined company would operate one of the largest branch networks in the UK with 739 outlets, Market Intelligence data shows, although the Virgin Money brand would be phased out within six years.
The 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, as part of our 'Branch Promise' and leading levels of customer service," Nationwide CEO Debbie Crosbie said.
The surprise deal makes sense given Nationwide's strategic aim, Susannah Streeter, head of money and markets at Hargreaves Lansdown, said in a commentary.
"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 said.
Acquiring Virgin Money is "a sensible, well-thought-through, yet brave, strategic move for Nationwide. … [I]t's absolutely the right move in the context of the strategy set out since Crosbie took the helm," Goodbody analyst John Cronin said in a research note.
Nationwide is paying £2.9 billion in cash for Virgin Money, making it the largest deal between UK lenders since 2008. The deal could spark consolidation in the sector, especially for companies that have a perceived specialization, according to Douglas Grant, managing director of Conister Bank.
"[Gaining] more market share in your specialist market would make sense from a consolidation perspective," Grant said in a research note.
Virgin Money's share price soared after the deal's announcement, trading more than 35% up at around midday in London.