Virgin gets foothold in UK retail bank sector

Published on Friday 8 January 2010 21:29

SIR Richard Branson's Virgin Money is ready for an assault on the British retail banking market after buying a regional player which gives it the licence needed to sell savings and mortgages.

• Picture: Getty

Virgin Money, which has an office in Edinburgh, is spending 50 million on Church House Trust, a west of England-based private bank founded in 1972 by a family of solicitors. The deal values Church House at about 12.3m and Virgin Money is injecting an additional 37.3m of new capital into the operation. Church House, which does not operate a branch network, has about 3,000 private customers and 50m in deposits. The bank, which has only ten staff, will see its investment arm bought out by its management.

The Financial Services Authority (FSA), which assesses the fitness of anyone buying a bank and can block such deals, has approved Virgin's application to become the controlling shareholder in Church House. Virgin Money said it had already received acceptances in respect of 65.8 per cent of Church House shares.

Virgin Money, which has more than 30 employees in Edinburgh, has about 2.5 million customers. It offers a range of financial services including credit and pre-paid cards, savings, individual savings accounts, insurance and life assurance products. It currently lends its brand to financial services products that are provided by other lenders, including Royal Bank of Scotland and the Co- operative Bank. It wants its own banking licence so that it can become a fully fledged player.

Analysts said the deal allows it to control a banking licence and potentially cherry-pick some sections of Northern Rock. The state-owned bank was officially split into two on 4 January. Virgin is one of the suitors reportedly lining up to take over the "good" part of the bank, which includes its savings and mortgage customers. Other possible acquirers of assets include National Australia Bank, Tesco and Spain's Santander, owner of Abbey.

Branson said: "The Church House Trust business offers us a strong platform for growth. Virgin Money aims to bring simplicity to the UK banking market which has traditionally been a complex sector."

Jayne Anne Gadhia, the Edinburgh-based chief executive of Virgin Money, said the company would be in a position to provide consumers with a different type of banking experience

David Black, banking analyst at Defaqto, said it would not be a surprise to see a Virgin-branded bank on the High Street before long.

Another analyst, however, warned there was huge regulatory uncertainty in setting up a bank in the current environment.

Edinburgh-based Quayle Munro acted as financial adviser to Virgin Money, while Europa Partners advised Church House in the deal.