Nationwide insists its acquisition of Virgin Money will make it more financially resilient after experts said the deal could initially weaken the company’s balance sheet

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

The building society agreed a £2.9 billion deal last week to buy the challenger bank, creating Britain’s second-largest savings and loan group. The collaboration is Debbie Crosbie’s boldest move since she became boss of the mutual fund in 2022.

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

But an analysis of Nationwide’s balance sheet after swallowing Virgin Money shows it would be in a weaker position.

Nationwide says a key measure of financial strength, known as common equity tier 1 capital, would be around 20 percent after the acquisition. That’s still high compared to other major banks, but lower than the 27 percent Nationwide reported last year.

Another key indicator, the leverage ratio, would also be weakened if Nationwide were to acquire Virgin Money. “This is a strong bank buying a weaker bank on the assumption that better management will boost returns,” said banking expert Philip Augur.

“Maybe so, but the lengthy integration period will put pressure on management,” he added. Nationwide plans a soft-soft approach to bedding in Virgin Money. The company will run both brands with separate banking licenses ‘in the medium term’, but does not expect significant job cuts at Virgin Money in the first year after the deal is completed.

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

Sir Richard Branson’s Virgin Group will put more than £400 million into the deal for its 14.5 percent 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 the Virgin Group to stop using the name in four years. The bank will also pay the Virgin Group £15 million a year as it continues to do so.

The lender is facing calls from some of its members to vote on the Virgin deal. But Nationwide says a vote – which would take time – could derail the deal under City’s takeover rules.

Less than half (49 percent) of the 156 members surveyed by YouGov were positive about the deal, although only six percent said they were negative.