The Nationwide building society is facing growing calls to give its 16 million members a say on its proposed £2.9bn takeover of high street rival Virgin Money in what would be the biggest UK banking deal since the financial crisis.
It is just under two weeks since the building society shocked the City when it said it had reached a preliminary agreement to pay Virgin Money shareholders 220p a share, a 38% premium on the lender’s share price at the time.
The move, if given the go-ahead, would create Britain’s second-biggest savings and loans group and propel Nationwide into the big league of retail banking with 700 branches and combined assets of about £366.3bn.
However, the deal would mean an entrance into the riskier world of business banking and taking on the old Northern Rock mortgage business. The acquisition would also deliver a big payday for Sir Richard Branson, a move that could sit uncomfortably with some Nationwide members. Branson is expected to reap more than £400m from the deal because of his remaining 14.5% stake in Virgin Money, which he founded in 1995.
While most UK banks are owned by their shareholders, Nationwide is the last big mutually owned financial institution, meaning the board is answerable to its customers who have banking, savings and mortgage accounts. Some of these members are said to be questioning whether a big takeover would be in their best interests.
Alongside the massive payment to Branson, a successful takeover would also see a £6m payday for Virgin Money bosses with the longtime chief executive, David Duffy, pocketing £3.5m alone.
The member of the House of Lords and former pensions minister Ros Altmann is among those who have said it would be “wise” of the building society to give its members a say in the takeover.
“The whole beauty of a mutual is that it is run in the interests of its members who have voting rights too and giving them the chance to exercise their right in a major transaction seems sensible,” she said.
The financial services expert and peer Sharon Bowles has suggested that while the deal looks good on paper, it would result in a significant change in character for Nationwide.
“Are they [the members] going to be better off by being bigger?” she asked.
Nationwide has snapped up a number of smaller building societies in the past, including Dunfermline, Derbyshire and Cheshire, without a member vote. However, this deal is a much bigger affair. Virgin Money, based in Newcastle, is about a third of Nationwide’s size and includes the Yorkshire and Clydesdale banks.
Nationwide’s boss, Debbie Crosbie, has written to the society’s 16 million members outlining the deal, but the letter did not spell out why it would be in members’ best interests, in part because the board has not yet made a formal bid for Virgin.
“The combination of our businesses would put us in a stronger position to continue to provide Fairer Share Payments to our eligible Nationwide members, better value mortgages and savings, and leading customer service. Over time, we would aim to provide a wider range of products and services to our customers and members, including Virgin Money’s well-established business banking services,” the letter told members.
Nationwide’s bid has been backed by several champions of the mutual sector and other analysts.
Robin Fieth, chief executive of the Building Societies Association, said: “There are many parts of financial services which would benefit from the mutual model, not least business banking.”
At the weekend, the Mail on Sunday reported that if just 500 Nationwide members deposited £50 each, they could call a special meeting to push for a vote on the Virgin deal. The society is reported to have taken legal advice that no member vote is needed under the 1985 Building Societies Act to approve the Virgin takeover.
The society’s board fears that a vote will not only take it past the 4 April deadline by which the offer must be made, but it would also tie the board’s hands and restrict its ability ever to buy a listed bank.
