Nationwide wins £2.3bn from Virgin Money acquisition deal

Nationwide Building Society has revealed it will make a bigger-than-expected £2.3bn profit from its acquisition of rival Virgin Money.

The lender previously claimed the profit could be around £1.5bn.

The gain reflects the gap between the value of Virgin Money and the £2.9bn acquisition price paid, Nationwide said.

John Cronin, analyst at SeaPoint Insights, said: “This is much higher than expected when the deal was first announced and reflects positive fair value adjustments on the acquisition as well as a tangible build of capital in Virgin Money. UK”.

The deal has helped Nationwide bolster its revenue potential from high street banking and credit cards, and made it the second largest lender in terms of retail mortgages and deposits, with total assets of more than £370bn.

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

Debbie Crosbie, chief executive of Nationwide, told Reuters: ‘We have always said we will take a slow and measured approach to this integration.

“There are no major synergies with this agreement, it is about the commercial market shares that we want to maintain and achieve, and it is a real diversification bet.”

The Competition and Markets Authority gave the green light to the deal in July, saying it would not reduce competition in the mortgage and credit card sector.

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

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

Payments to members hit a record £1.3bn in the first half, thanks to £950m in member benefits from better-than-market pricing and incentives, as well as a £385m payout to members. the clients.

Nationwide said it distributed £385 million through its Fairer Shares Payment Plan to 3.85 million eligible members in June 2024.

The lender’s capital ratio rose despite falling profits and payments, Nationwide said.

Crosbie said: ‘ Over the last 18 months, our mutual model has allowed us to provide more than £3.5 billion in value to members, including £729 million through the National Fairer Share Payment.

‘Following our acquisition of Virgin Money on 1 October, we have recorded a profit of £2.3bn as the value of the net assets acquired is well above the price we paid. This gain provides significant headroom to cover our investment in integration as well as 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 £210.8 billion in the half-year, up from £204.5 billion at the end of the previous period. Net borrowings reached £6.3bn in the period, up from £500m at the same time a year ago.

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

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

“House prices are expected to continue growing steadily, while the bank rate is expected to be gradually reduced over the next 18 months, with a 25 basis point reduction already made in November 2024.”