Britain’s Nationwide books surprisingly big £2.3 billion gain on Virgin Money deal
NATIONWIDE Building Society said on Wednesday (Nov 27) it would realise a bigger-than-expected gain of £2.3 billion (S$3.9 billion) from its acquisition of rival Virgin Money, although it reported a sharp drop in profits for the first half of the year.
Statutory profit before tax tumbled 43 per cent to £568 million in the six months to Sep 30 as falling interest rates ate into margins while it increased payouts to its members.
“The standout feature of the update was the enormous £2.3 billion gain on the acquisition of Virgin Money UK reported by Nationwide this morning,” said John Cronin, a financials industry analyst at SeaPoint Insights.
“This is much higher than had been expected when the deal was first announced and reflects positive fair value adjustments at acquisition as well as some tangible equity build at Virgin Money UK,” he said.
Nationwide had previously given guidance that the gain could be as much as £1.5 billion.
The deal, concluded in October, has helped cash-rich Nationwide bolster its potential to earn from business banking and credit cards, and made it Britain’s second-largest lender in terms of mortgages and retail deposits with total assets of more than £370 billion.
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Nationwide says it will take 18 months to study Virgin Money’s business and books before making any big changes.
“We’ve always said we’ll take a slow and measured approach to this integration,” Nationwide CEO Debbie Crosbie told Reuters.
“There are no huge synergies from this deal, it is about the commercial market shares that we want to maintain and achieve, and it is a real diversification play,” she said.
The lender, unlike the big shareholder-owned banks it competes with, does not prioritise profit but instead measures how much it pays out to its members.
That reached a record £1.3 billion in the first half, thanks to £950 million in member benefits from better than market rate pricing and incentives, as well as a £385 million payout to customers.
The lender’s capital ratio increased despite the drop in profit and those payouts, chief financial officer Muir Mathieson told Reuters.
“Maximisation of profits is not the right answer for Nationwide, our purpose is to give as much value as we sustainably can back to our members,” he said. REUTERS
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