RBoS aims for Virgin One deal

Published on Monday 16 July 2001 01:00

The Royal Bank of Scotland is set to take complete ownership of Virgin One, the banking operation it set up in 1997 in partnership with Sir Richard Branson, now valued at about £250 million.

As well as looking to buy Branson’s 25 per cent stake, RBoS also wants to acquire the 25 per cent stake held by Australian insurance group AMP.

The acquisition would allow Edinburgh-based RBoS and its subsidiary NatWest to compete more strongly in the market for "all-in-one" accounts that link customers’ savings and current accounts with their mortgages, allowing them to pay less interest. RBoS already owns 50 per cent of Virgin One, and provides the banking licence to run the operation.

Virgin One was the first account of this type to be set up in the UK. Edinburgh-based Intelligent Finance, a subsidiary of the Halifax Group, and the Woolwich have since followed.

Earlier this month, HSBC became the first of the big four high street banks to offer the account. RBoS has been piloting its own branded version of the same account.

The latest deal is likely to see NatWest join the fray under its own brand. Although this would mean the RBoS group running three different versions of the same account, sources say the group strategy is to maximise the use of the different brands.

At the end of last year, Virgin One had a net mortgage book of more than 3 billion and had 75,000 customers.

RBoS will only be able to use the Virgin One name in the UK, as Branson is planning to expand abroad.

All-in-one, or integrated accounts tend to reduce banks’ margins. High-margin savings accounts make more profit than mortgage lending, which has become fiercely competitive. However, banks hope to profit from the increased volume of business.

Intelligent Finance claimed 156,000 customers and more than 3 billion in balances as at 1 May. It also said account applications were running at 3,000 per day.

RBoS became the second-biggest banking group in the UK last year when it took over NatWest in a 20 billion deal, beating off competition from the Bank of Scotland. However, the group only has a market share of six per cent in mortgages.

RBoS is also looking to expand in the US. Citizen, the company’s US subsidiary, is in talks with Mellon Financial Corporation, which has 350 branches, about a $3 billion takeover.

Last week, RBoS failed to make it into the list of approved companies for the new ethical investment index, FTSE4Good.

The bank is continuing to have dialogue with the compilers of the index, in a bid to have the decision reversed.

FTSE excluded RBoS because it does not have a publicly-stated policy on human rights, despite operating in Indonesia.

RBoS shares have gained 43 per cent in the last year, while the FTSE 100 has declined more than 14 per cent. The company has benefited from savings and synergies from the NatWest takeover, as well as investors switching into banking shares and out of technology.