For free real time breaking news alerts sent straight to your inbox sign up to our breaking news emails

Sign up to our free breaking news emails

Nationwide Building Society has launched a proposed £2.9 billion takeover of smaller rival Virgin Money in a move that will create a UK lending giant.

The move took the City by surprise and is set to catapult Nationwide into second place in the mortgage and savings market.

The planned takeover will bring together Britain’s fifth and sixth largest retail lenders, creating a combined group with around 24.5 million customers, more than 25,000 staff and nearly 700 branches.

It will give Nationwide more clout to challenge its big four banking rivals – Lloyds, NatWest, HSBC and Santander.

Together, the pair will have total assets of more than £366 billion and lending and advances of about £283.5 billion, making the merged group the second largest provider of mortgages and savings in the UK.

– What will happen with the Virgin Money brand?

The deal is set to eventually see the Virgin Money brand disappear from UK high streets.

Nationwide said it would keep the Virgin Money brand initially, but revealed it plans to rebrand the business as Nationwide within six years once the proposed takeover is completed.

This will see a reduction in the number of banking brands available to customers, while it will also see yet another company de-list from the London stock market, given that it would mean FTSE 250 firm Virgin Money being taken private.

– What are the reasons for the takeover?

Nationwide said that the deal would allow it to “accelerate its strategy and broaden and deepen its products and services faster than could be achieved organically”, while boosting its credit card arm and business banking offering.

Virgin Money said being part of Nationwide “would expand our customer offering and complete our journey in the banking sector as a national competitor”.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said Nationwide “wants to bolster and diversify streams of funding, tap into business deposits, and give a rocket boost to the development of its services”.

“A mutual taking over a listed bank is a rare move, but Nationwide clearly does not want to be stuck in the past and wants the know-how and access to scoop up future customers who demand more cutting-edge financial services,” she added.

– Why now?

Before steep rises on the back of the proposed deal, Virgin Money’s shares have been struggling in recent months and have been trading well below levels seen in 2021 and at the start of 2022.

Victoria Scholar, at interactive investor, said this gave Nationwide “an opportunity to snap up an undervalued asset”.

“Virgin Money has also struggled from a financial perspective with a slump in full-year profit reported last November resulting in a series of downgrades from the analyst community,” she added.

Last month, Virgin Money reported a fall in mortgage lending amid a slowdown in the housing market, with home loans down 2.2% to £57.1 billion in the final three months of 2023.

– How will the deal affect staff?

Nationwide has around 18,000 employees and Virgin Money has about 7,300 staff.

Nationwide said it does not intend to make any “material changes” to the size of Virgin Money’s workforce “in the near term”.

But it is unclear what will happen further out or what cost savings the pair will look to make after joining forces.

– What will it mean for branches?

Nationwide said it would keep a branch in each location where the combined group is present, until at least the start of 2026 and “values Virgin Money’s ongoing presence in Glasgow and Newcastle”.

Virgin Money has 91 branches, which has been scaled back significantly in recent years after a series of closures due to the shift towards online banking.

Nationwide is Britain’s biggest building society with 605 branches – and claims to have the UK’s single largest network of branches.

– What will it mean for Nationwide’s status as a mutual?

It has stressed that it will remain a mutual building society if the deal goes ahead and is given the green light by Virgin Money’s shareholders and Nationwide’s members.

– Does this start the gun on more deals among UK banks?

Experts said the takeover could pave the way for more deals among the smaller players.

Gary Greenwood, at Shore Capital, said: “This does underscore that there is value in the sector and that smaller banks on low valuation multiples are vulnerable to such approaches.”