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The biggest immediate winner from Nationwide’s £2.9bn bid for Virgin Money will be Sir Richard Branson.
His stake in the bank, along with brand licensing rights, is estimated to be worth at least £650m.
As encouraging as it may be to see the man often voted Britain’s most popular businessman rewarded, Nationwide members, including this writer, may want to ask whether this is the best use of resources.
As with many companies in the financial sector, Nationwide has benefited from a Bank of England base rate of 5.25 per cent.
Banks and building societies win in three ways. It offers the opportunity to widen the interest rate spread represented by the gap between what it pays to depositors and the fees charged to borrowers.
Nationwide has grown to become the UK’s largest building society by successfully acquiring and integrating over 250 organizations in its 140-year history.
There are windfalls from checking accounts or low-interest savings accounts that can be placed in the money markets at a higher rate. And excess funds can be placed in the Bank overnight and capture the bank rate.
All of this has been great for the banks, which have been able to soften up shareholders through share buybacks and higher dividends. As a mutual, Nationwide does not make direct distributions.
Instead, it has delivered mutual benefits by offering better mortgage deals, bonuses for savers and last year 3.4 million members received a “fairer share” of £100.
The good times also mean that chief executive Debbie Crosbie has been able to invest in a modern rebrand and has made a sacred promise to suspend branch closures until 2026.
Clearly all this shows the value of mutuality. But there are serious questions to be raised about whether dipping into reserves that technically belong to members to buy another bank (one that the CEO knows well from her previous roles) is a great use of members’ money.
They certainly deserve a clear justification of the benefits.
Arguably, at a time when household budgets are under pressure, they might prefer another, fairer share allocation or a discount on their home loan charges.
In a letter to members, chairman Kevin Parry (also a non-executive of DMGT, owner of the Daily Mail) notes that Nationwide has grown to become the UK’s largest building society by successfully acquiring and integrating more than 250 other organizations in its 140 years of history.
Indeed, in the wake of the great financial crisis it honorably became the savior of last resort for struggling building societies.
Virgin Money is different. It is a publicly traded company that has been run on a very different basis.
It will be alongside Nationwide for the next few years before full integration. At a minimum, members should be consulted (through town meetings or some other similar mechanism) about whether the transaction is in their best interests.
If the mutual legacy is in danger of being diluted, a member vote might be the most democratic way to proceed.
Not all transactions carried out by mutuals have proven to be in the best interest of members.
The 2009 merger of the Co-operative Bank and Britannia Building Society turned out to be a disaster for everyone involved, including the deal’s advisers.
Liverpool Victoria LV’s effort to sell itself to private company Bain Capital in 2021 was rejected by members after a sustained campaign by this newspaper.
All signs suggest that Crosbie and Nationwide’s board of directors are making a smart purchase.
However, given Virgin Money’s history as a bank built on agglomeration, members need to be reassured that due diligence is thorough.
Too many mistakes have been made in past financial mergers.
Who can forget the Bank of Scotland and Halifax disaster and the disappearance of shareholder value?
History demands great care and attention. After all, it is members’ funds, dating back to Nationwide’s beginnings in 1884, that are at stake.