Nationwide’s £650m backing for Virgin Money

Nationwide has had to pump £650 million into Virgin Money’s Clydesdale Bank unit to maintain the lender’s financial strength, The Mail on Sunday can reveal.

The huge capital injection follows the building society’s £2.8 billion takeover of Virgin Money, which will create Britain’s second largest savings and loan group.

Nationwide made a bigger-than-expected profit of £2.3 billion on the deal – the biggest in banking since the financial crisis – fueling criticism that Virgin Money’s board had sold out cheaply.

The price tag was so low that Nationwide paid far less for Virgin’s assets than they are now thought to be worth.

But it has now emerged that Nationwide injected new shares into Virgin Money to prevent Clydesdale Bank’s capital ratios from falling as a result of the buyout.

Most of the £650 million infusion was done to bring Clydesdale’s accounting methods in line with Nationwide’s more conservative approach.

The remainder of the injection covered a £250 million payment that tycoon Sir Richard Branson will receive for the continued use of the Virgin name over the next four years. Details of the financial support are included in footnotes to Nationwide’s recent half-year results.

Building Society director Debbie Crosbie has hailed the Virgin Money deal as a “unique opportunity”, which would engage the mutual investment banker, diversify financing and “strengthen us financially”.

It has promised a “gradual” and “measured approach” to integrating new money. Nationwide has yet to say how much it will cost to merge Virgin Money’s IT systems and improve customer service.

Clydesdale’s capital ratios – a key measure of financial strength – are among the lowest in the banking sector, while Nationwide’s are among the highest.

The combined group is now the second largest provider of home loans in Britain, accounting for £1 in every £6 of mortgage balances, and £1 in every £8 of retail deposits.

Nationwide confirmed the £650 million support package.