Home Breaking Virgin Money agrees CYBG takeover in £1.7bn deal

Virgin Money agrees CYBG takeover in £1.7bn deal

by LLB Reporter
18th Jun 18 8:02 am

Here’s what you need to know

Virgin Money today agreed to a takeover offer from CYBG, the owner of Clydesdale and Yorkshire Bank.

The transaction combines the UK’s two largest challenger banks which have complementary businesses:

  • CYBG has a full product range, established retail and SME franchises with deep customer loyalty and an advanced, Open Banking ready digital platform that is live in the market today
  • Virgin Money benefits from one of the most admired and recognised brands in the UK, a truly national distribution capability with strong propositions in mortgages, credit cards and retail investment products, and a great reputation for customer service

Bringing these businesses together creates the UK’s first true national banking competitor to the status quo.

On day one, the group will double in size, serving six million customers with total lending of c. £70 billion. It will also be double the size of the nearest challenger bank. Immediate preparations will be made to rebrand the group’s entire retail operation to the Virgin Money brand, with the rest of the customer base transferring to this single, powerful brand in due course.

The financial rationale for the deal includes:

  • Significant synergies including a pre-tax run rate cost synergies of £120 million by the end of the third year post completion
  • A diversified, customer-centric funding model positioned towards lower risk assets, with 77% customer deposit funding
  • A diversified, low-risk asset portfolio, with circa 83% of lending weighted towards high quality, low risk mortgages
  • A strong pro-forma capital position with a CET1 ratio from day one of over 12%, with a significant buffer to regulatory requirements
  • Accelerated delivery of CYBG’s financial targets resulting in material EPS accretion for all shareholders once full cost synergies are delivered and acceleration of progressive dividend polices, supported by strong capital generation

The successful migration of Virgin Money customers to CYBG’s platform is a key focus. There will be no “big bang” migration on day one.  The transfer will be phased over a period of 3 years. This technology platform is well-established and scalable and has already seen the successful migration of over 2 million Clydesdale and Yorkshire Bank customers without issue.

David Duffy, Chief Executive of CYBG, commented:

“The combination of CYBG and Virgin Money will create the first true national competitor to the status quo in UK banking, offering a genuine alternative for consumers and small businesses.

 

By combining two of the UK’s leading challenger banks, we will create a national, full service bank with the capabilities needed to compete effectively with the large incumbent banks. We are bringing together CYBG’s 175-year heritage in serving retail and SME

customers and advanced digital technology, with the iconic Virgin Money brand and consumer champion credentials.

 

Together we will serve around six million customers, with the scale, capabilities and financial muscle to disrupt the status quo – and with a clear ambition to provide our customers with the best service in the UK.

 

CYBG and Virgin Money have similar values, with strong roots in our regional heartlands and a shared vision for how the Combined Group can be a leading force in the banking model of the future, whilst maintaining our strong people-focused values. I am hugely positive about what we can achieve together with the talent that is available on both sides.

 

The strategic rationale is clear and offers both sets of shareholders real value, material earnings accretion, and enhanced capital generation for the benefit of all shareholders, together with both firms’ customers, colleagues and local communities.”

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