Nationwide beneficial properties £2.3bn from Virgin Money takeover deal

Nationwide Building Society has revealed it will realise a bigger-than-expected gain of £2.3billion from its acquisition of rival Virgin Money. 

The lender previously claimed that the gain could be approximately £1.5billion.

The gain reflects the gap between Virgin Money’s value and the acquisition price of £2.9billion paid, Nationwide said 

John Cronin, an analyst at SeaPoint Insights, said: ‘This is much higher than had been expected when the deal was first announced and reflects positive fair value adjustments at acquisition as well as some tangible equity build at Virgin Money UK.’ 

The deal has helped Nationwide bolster its potential to earn from business banking and credit cards, and made it the second-largest lender in terms of mortgages and retail deposits, with total assets of over £370billion.

Nationwide says it would spend 18 months studying Virgin Money’s business and books before making any big changes. 

Gain: Nationwide Building Society has revealed it will realise a bigger-than-expected gain of £2.3bn from its acquisition of rival Virgin Money

Debbie Crosbie, Nationwide’s chief executive, told Reuters: ‘We’ve always said we’ll take a slow and measured approach to this integration.

‘There are no huge synergies from this deal, it is about the commercial market shares that we want to maintain and achieve, and it is a real diversification play.’ 

The Competition and Markets Authority gave the deal the green light in July and claimed it would not reduce competition for mortgages and credit cards.

On Wednesday, Nationwide reported a sharp drop in profit for the first half of the year. 

The group’s statutory pre-tax profit fell 43 per cent to £568million in the six months to 30 September, as lower interest rates ate into margins and the group increased payouts to its members.   

Payouts to members reached a record £1.3billion in the first half, thanks to £950million in member benefits from better than market rate pricing and incentives, as well as a £385million pound payout to customers.

Nationwide said it dished out £385million through its Fairer Share Payments Scheme to 3.85million eligible members in June 2024.  

The lender’s capital ratio increased despite the drop in profit and the payouts, Nationwide said. 

Crosbie said: ‘ Over the past 18 months, our mutual model has enabled us to provide over £3.5billion in member value, including £729 million through the Nationwide Fairer Share Payment.

‘Following our acquisition of Virgin Money on 1 October, we’ve recorded a gain of £2.3billion, as the value of net assets acquired is well above the price we paid. This gain provides significant headroom to cover our investment in integration, as well as in service and value.

‘Future profits generated by Virgin Money can now be used for the benefit of customers, rather than being paid to external shareholders.’

Mortgage balances reached £210.8billion in the half, up from £204.5billion at the end of the previous period. Net lending reached £6.3billion in the period, up sharply from £0.5billion at the same point a year ago.

On deposits, Nationwide said: ‘Member deposit balances increased by £8.3billion (H1 2023/24: £4.2bn) to £201.7billion (4 April 2024: £193.4billion). This was a record increase for a first half year.’ 

Looking ahead, Nationwide said: ‘The Group expects modest growth in the UK economy, with inflation close to its target level in the years ahead. 

‘House prices are expected to continue to grow steadily, whilst Bank rate is forecast to be reduced gradually over the next 18 months, with a 25-basis points reduction already made in November 2024.’