Nationwide strikes deal to buy Virgin Money for £2.9bn

Nationwide Building Society has reached an agreement to buy Virgin Money in a £2.9bn deal which would see the brand eventually disappear.

The deal would create the UK's second largest mortgage and savings group.

Nationwide said it would not make any material changes to Virgin Money's 7,300 employees "in the near term".

It said that it would keep using the Virgin Money brand initially but it would be phased out over six years once the proposed takeover is completed.

If the deal goes ahead it would be the biggest UK bank takeover since the 2008 financial crisis. It led to the nationalisation of Northern Rock bank, which was then bought by Virgin Money in 2012.

Virgin Money was then bought by the Clydesdale and Yorkshire bank group CYBG in 2018, but the group was rebranded under the Virgin name.

Virgin Money is now the UK's sixth largest retail bank with around 6.6 million customers, while Nationwide is UK's biggest building society with nearly 18 million customers.

Combining the two would create a group with 696 branches. In the UK, only Lloyds Banking Group would be bigger, and Nationwide said it would overtake NatWest to become the second largest mortgage provider.

Nationwide said it would keep a branch in each location where the two businesses are present until at least the start of 2026.

Nationwide, which currently has 18,000 employees, will stay a mutual and wants to gradually integrate Virgin Money.

However, Virgin Money customers would not automatically become "members" of Nationwide. Membership gives certain benefits, such as the Nationwide Fairer Share where eligible members each received £100 last year.

Nationwide said the Virgin acquisition would let it "broaden and deepen" products and services for customers and put it in a stronger position to make more of those payments to members.

It said it wanted also offer customers rates on mortgages and savings that were "better than the market average".

Nationwide's chief executive, Debbie Crosbie, said the deal "would bring the benefits of fairer banking and mutual ownership to more people in the UK".

Earlier in her career Ms Crosbie was at Clydesdale, rising to chief operating officer. She left before Clydesdale merged with Virgin Money to take over the top job at TSB.

At the time, the lender was in turmoil after an IT meltdown in 2018 which locked nearly two million customers out of online banking, some for weeks.

Russ Mould, investment director at AJ Bell, said it is "an interesting time for big deals in the mortgage sector", with tentative signs that the property market is regaining strength on expectations the Bank Of England will cut rates later this year.

"Nationwide is effectively pouncing on Virgin Money at a time when prospects are improving for its industry," he said.

In the medium term, Virgin Money would operate as a separate legal entity with its own board and banking licence.

The 220p-a-share price offered by Nationwide is 38% higher than Virgin Money's closing share price on Wednesday, and the bank says it is "minded to recommend it" to shareholders.

The deal does not need the approval of Nationwide's mutual members but it does need to be backed by Virgin shareholders.

Virgin Money's share price rose more than 36% to 216p each after the announcement on Thursday morning.

Last month, Barclays announced it was buying Tesco's retail banking operations for £600m, and analysts say the sector could see more takeovers.

"With the outlook for the UK economy stabilising, we wouldn't be surprised to see more deals like this announced," RBC Capital Markets analyst Benjamin Toms told Reuters.

"UK bank valuations are relatively cheap for the sustainable returns they offer."