Nationwide to buy Virgin Money for GBP2.9 billion in challenge to Big Four U.K. banks

By Louis Goss

Nationwide Building Society has preliminary agreement to acquire Virgin Money, the U.K.'s sixth largest retail bank, in a move that could see the mutual lender pose a growing challenge to the Big Four banks that dominate Britain's financial sector.

Nationwide, the world's largest building society, said it had reached a preliminary agreement to acquire Virgin Money at a 38% premium, of 220 pence per share, in an agreement that values the 28-year-old retail bank at approximately GBP2.9 billion.

If completed, the merger would see the newly-combined financial institution hold GBP366.3 billion worth of assets and GBP283.5 billion worth of loans on its balance sheets, in a deal that would see it overtake NatWest to become the U.K.'s second largest mortgage and savings provider.

Virgin Money UK (UK:VMUK) shares surged 37% on Thursday having previously lost 9% of their value in the 12 months prior. Nationwide Building Society (UK:NBS) shares increased by less than 1% on Thursday after gaining 3% over the past year.

The U.K.'s banking sector is currently experiencing a wave of consolidation, as the country's top lenders seek to bolster their balance sheets to shield themselves against the possible negative impacts of a economic recession.

In February, Barclays struck an agreement to buy Tesco Bank's retail banking business in a deal worth GBP1 billion.

Headquartered in Glasgow, Virgin Money, which was founded by British billionaire Richard Branson in 1995, currently has 6.6 million U.K. customers, and GBP91.8 billion in assets, alongside a GBP57.1 billion mortgage portfolio.

Nationwide, which traces its origins back to the co-operative lenders of Victorian England, has over 17 million customers, including 16 million "members" who together own the mutual lender which is currently Britain's third-largest mortgage provider.

The Swindon headquartered lender has 18,000 staff, including those working its 600 branches across the U.K., and currently has GBP272 billion on its balance sheet, which is almost entirely made up of mortgages on residential properties in Britain.

In a statement, Nationwide chairman said the merger would allow the building society to become a "stronger and more diverse business" while also letting it "deliver the benefits of fairer banking and mutual ownership to more people in the U.K."

Britain's banking sector is currently dominated by the country's top four financiers - HSBC (UK:HSBA), Barclays (UK:BARC), Lloyds Banking Group (UK:LLOY), and NatWest (UK:NWG) - who are often referred to as the Big Four due to the outsized position they gained in the years running up to the financial crash in 2008.

Nationwide is currently the U.K.'s sixth largest bank in terms of assets, with GBP318 billion, behind Standard Chartered, GBP728 billion, Natwest, GBP931 billion, Lloyds, GBP1.01 trillion, Barclays, GBP1.65 trillion, and HSBC, GBP2.6 trillion.

If approved, the merger, which was announced on Thursday ahead of International Women's Day on Friday, is set to become the largest deal carried out by Nationwide's first female CEO, Debbie Crosbie, who took up her position in June 2022.

The Glaswegian banker previously headed Edinburgh headquartered TSB Bank having started her career at Clydesdale Bank where she worked her way up from a job as a project manager to the position of COO.

Nationwide's acquisition plans follow Clydesdale and Yorkshire Banking Group's acquisition of Virgin Money in 2018, which saw the bank group take on the Virgin Money brand in becoming the U.K.'s sixth largest retail bank.

-Louis Goss

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-07-24 0509ET

Copyright (c) 2024 Dow Jones & Company, Inc.