Nationwide Gains £2.3 Billion From Acquiring Virgin Money Draws Criticism

Nationwide said the value of the assets was £5.1 billion weeks after completing the deal in October.

Nationwide Building Society has disclosed a £2.3 billion gain from its acquisition of Virgin Money, prompting accusations that executives from Virgin Money have run off with the money after losing faith in the former chief executive David Duffy.

The deal ended in October, which helped Nationwide increase its revenue from commercial banking and credit cards. It also made it the second-largest lender in Britain, with total assets of over 370 billion pounds.

When the building society released its terms of the deal as a stand-alone brand, its leaders praised the conditions of the agreement.

In the end, the £2.8 billion it paid for Virgin Money reduced the accurate value of the Virgin Money assets, even though it is premium on the target bank price value of the share and valued at £2 billion in the market.

Nationwide said the value of the assets was £5.1 billion weeks after completing the deal in October. That represents a £2.3 billion profit on the purchase price, which is more than the £1.5 billion profit it initially anticipated.

Debbie Crosbie, the CEO of Nationwide, did not find it surprising. He found it a well-considered and smart move. Virgin Money board would have been well aware since all its competitors traded in the same area.

Investors and executives are frustrated with the declining market values of UK banks listed on the London Stock Exchange. The discounted sale price indicated the management had given up the former CEO Duffey and the 29-year-old bank.

Gary Greenwood, a banking analyst at Shore Capital, stated that Virgin Money decided to run away with the money since they did not believe the CEO’s plan to increase the profit to support a stand-alone valuation.

They struggled to deliver growth, especially in mortgages and had smaller margins than their large banking firms due to funding disadvantages.

They were also disappointed with below-the-line expenses, pointing out that management made a new plan to spend £130 million on cybersecurity, which the market did not anticipate. Thus, the profits were also low.

After years of service in the bank, co-founded in 1995 by billionaire Sir Richard Branson, Virgin Money executives will receive £6 million in compensation due to the acquisition.

Clifford Abrahams, the chief financial officer, will receive £415,494, and James Peirson, the head of Virgin Money’s legal team, will receive £691,812.

Former CEO Duffy was supposed to receive most of the profits, getting roughly £3.5 million from the buyout of his nearly 1.6 million shares, but he resigned in October as part of the takeover agreement.

The largest windfall, £724 million, will go to the co-founder billionaire Sir Richard Branson, who supported the acquisition and is Virgin Money’s largest shareholder. That includes £414 million from his 14.5% shareholding.

It also includes £310 million that Nationwide has agreed to pay to use the Virgin Money brand. It includes a £250 million exit fee and £15 million in annual royalties for the first four years, which leads to the name disappearing from the UK high streets within six years.

Nationwide’s chief executive, Debbie Crosbie, asserted that the £2.3 billion gain would still provide ample room to cover the cost of merging two companies and to pay for customer service. She hinted at a suggestion that might result in additional payments and favorable interest rates for account holders.

Crosbie stated that they are working hard to ensure that a great package is announced for the year and that they are attractive.

Her comments came as Nationwide released its half-year earnings, which revealed that pre-tax profits for the six months ending September 30th fell 43% to £568 million. Bosses said it was due to declining interest rates and funds spent on consumer offers and rewards.