Nationwide will benefit £2.3 billion from the takeover deal with Virgin Money
Nationwide Building Society has revealed it will make a bigger-than-expected profit of £2.3 billion from the takeover of rival Virgin Money.
The lender previously claimed profits could be around £1.5 billion.
The profit reflects the gap between Virgin Money’s value and the £2.9 billion 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 some tangible share building at Virgin Money UK.’
The deal has helped Nationwide boost its potential to make money from business banking and credit cards, and made it the second-largest lender in mortgages and retail deposits, with total assets of more than £370 billion.
Nationwide said it would spend 18 months studying Virgin Money’s business and books before making any major changes.
Profit: Nationwide Building Society has revealed it will make a bigger-than-expected profit of £2.3 billion from the takeover of rival Virgin Money
Nationwide CEO Debbie Crosbie told Reuters: “We have always said we will take a slow and measured approach to this integration.
“There are no huge synergies from this deal, it’s about the commercial market shares we want to maintain and achieve, and it’s a real diversification play.”
The Competition and Markets Authority gave the deal the green light in July, claiming it would not reduce competition in mortgages and credit cards.
On Wednesday, Nationwide reported a sharp decline in profit for the first half of the year.
The group’s statutory pre-tax profits fell 43 per cent to £568 million in the six months to September 30, as lower interest rates hit margins and the group increased payouts to its members.
Member payouts reached a record £1.3 billion in the first half, thanks to £950 million in member benefits from better than market prizes and incentives, as well as a £385 million payout to customers.
Nationwide said it paid out £385 million to 3.85 million eligible members through its Fairer Share Payments Scheme in June 2024.
The lender’s capital ratio rose despite the decline in profits and payouts, Nationwide said.
Crosbie said: ‘ Over the past 18 months, our mutual model has enabled us to deliver more than £3.5 billion in member value, including £729 million through the Nationwide Fairer Share Payment.
‘Following our acquisition of Virgin Money on October 1, we made a profit of £2.3 billion as the value of the net assets acquired was well above the price we paid. These gains provide significant headroom to cover our investments in integration, 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 stood at £210.8 billion in the first half, compared with £204.5 billion at the end of the previous period. Net lending reached £6.3 billion in the period, a sharp increase from £0.5 billion at the same point a year ago.
On deposits, Nationwide said: ‘Member deposits increased by £8.3 billion (H1 2023/24: £4.2 billion) to £201.7 billion (4 April 2024: £193.4 billion). This was a record increase for the first half of the year.’
Looking ahead, Nationwide said: ‘The Group expects modest growth in the UK economy, with inflation close to target levels over the coming years.
‘Housing prices are expected to continue to grow steadily, while bank rates are expected to be gradually reduced over the next 18 months, with a 25 basis point cut already implemented by November 2024.’
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