£650m Nationwide support for Virgin Money

Nationwide has had to pump £650m into Virgin Money’s Clydesdale Bank unit to keep the lender financially healthy, The Mail on Sunday can reveal.

The huge capital injection follows the building society’s £2.8bn acquisition of Virgin Money, which will create Britain’s second-largest savings and loan group.

Nationwide made a bigger-than-expected £2.3bn profit on the deal – the biggest in banking since the financial crisis – fueling criticism that Virgin Money’s board had been sold on the cheap.

The price was so low that Nationwide paid much less for Virgin’s assets than they are now considered worth.

But it has now emerged that Nationwide injected new capital into Virgin Money to prevent Clydesdale Bank’s capital ratios from falling as a result of the purchase.

Most of the £650m infusion was made to align Clydesdale’s accounting methods with the more conservative approach used by Nationwide.

The remainder of the injection covered a £250 million payment that tycoon Sir Richard Branson will receive for continued use of the Virgin name over the next four years. Details of the financial support are contained in the footnotes to Nationwide’s recent half-year results.

The building society’s chief executive, Debbie Crosbie, has hailed the deal with Virgin Money as a “unique opportunity”, which would take the mutual into business banking, diversify funding and “make us stronger financially”.

It has promised a “gradual” and “measured” approach to the integration of Virgin Money. Nationwide has yet to say how much it will cost to merge Virgin Money’s IT systems and improve its customer service.

Clydesdale’s capital ratios – a key measure of financial strength – are among the lowest in the banking sector, while Nationwide’s are among the highest.

The combined group is now the second largest provider of mortgage loans in the UK, accounting for £1 in every £6 of mortgage balances and £1 in every £8 of retail deposits.

Nationwide confirmed the £650m support package.