Nationwide building society has said it will realise a bigger-than-forecast gain of £2.3bn from its acquisition of the rival Virgin Money, as it also reported a sharp drop in profits.
The UK’s biggest building society’s pre-tax profits fell 43% to £568m in the six months to 30 September, down from £989m in the same period the year before, as falling interest rates ate into margins while it sustained payouts to its members.
Nationwide had forecast a £1.5bn gain from the Virgin deal earlier this year.
The gain reflects the gap between Virgin Money’s value and the acquisition price of £2.9bn it paid, Nationwide said.
Virgin Money shareholders voted overwhelmingly in May in favour of the 220p-a-share deal, with 89% backing the takeover. That included the support of its largest investor, Sir Richard Branson, who owned a 14.5% stake in the bank he founded in 1995. He was expected to receive £724m from the takeover.
The deal led to cash-rich Nationwide snapping up a smaller rival, bolstering its future ability to earn from business banking and credit cards as Virgin struggled to compete with bigger incumbents such as Lloyds and NatWest.
The acquisition has made the customer-owned building society Britain’s second-largest provider of mortgages and retail deposits, with total assets of more than £370bn, it said.
The competition watchdog approved the deal in July, saying it will not reduce competition for mortgages and credit cards.
Nationwide said it will take 18 months to study Virgin Money’s business and books, operating it as a wholly owned subsidiary before it completes a full integration and in doing so likely cutting overlapping jobs and business functions.
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The lender, unlike the big shareholder-owned banks it competes with, has said it does not prioritise profit but instead measures how much it pays out to its members in favourable savings rates and other methods.
This measure, known as member benefits, hit £950m, thanks to pricing and incentives that were better than average market prices.