Nationwide insists takeover of Virgin Money will make it financially more resilient after experts said deal could initially weaken mutual’s balance sheet

Nationwide has insisted its takeover of Virgin Money will make it more financially resilient after experts said the deal could initially weaken the mutual’s balance sheet.

The building society agreed a £2.9 billion deal last week to buy the challenger bank and create Britain’s second-largest savings and loans group. This merger is Debbie Crosbie’s boldest decision since she became boss of the mutual in 2022.

She said the takeover “strengthens Nationwide and means we can offer more value and broader services to our members”. Nationwide also says it would “create a combined group with enhanced financial strength”, with access to new sources of funding.

But an analysis of Nationwide’s balance sheet after swallowing Virgin Money shows that its position would be weaker.

Nationwide says a key measure of financial strength, known as Tier 1 capital, would be around 20 percent after the buyout. This figure remains high compared to other major banks, but lower than the 27 percent reported by Nationwide last year.

Another important indicator, the leverage ratio, would also be weakened by Nationwide’s acquisition of Virgin Money. “This is a strong bank buying a weaker bank on the assumption that better management will generate returns,” said banking expert Philip Augur.

“Maybe it will, but the long integration period will put a strain on management,” he added. Nationwide plans a gentle, gentle approach to bedding at Virgin Money. The group will operate the two brands with separate banking licenses “in the medium term”, but does not plan sweeping job cuts at Virgin Money in the first year after the deal is finalized.

Nationwide also extended its promise to keep all its branches open for two years until 2028, including all 91 Virgin Money outlets.

Sir Richard Branson’s Virgin Group will pocket more than £400 million for its 14.5 per cent stake. Virgin Money, which was bought by Clydesdale & Yorkshire Banking Group for £1.7 billion in 2018, will pay an exit fee of £250 million to Virgin Group to stop using its name in four years. The bank will also pay Virgin Group £15 million a year for as long as it continues to do so.

The lender faces calls from some of its members for a vote on the Virgin deal. But Nationwide says a vote — which would take time — could derail the deal under the city’s takeover rules.

Less than half (49%) of the 156 members surveyed by YouGov said they felt positive about the deal, although only 6% said they felt negative.