Virgin Money’s IPO leaves out small investors

VIRGIN Money will list on the London Stock Exchange before the end of the month in a move that will reward thousands of staff through a share handout.

JayneAnne Gadhia talked up the flotation plan. Picture: Getty

The challenger bank, which has a major base in Edinburgh employing about 200 people, will raise £150 million in a flotation that will value it at about £2 billion.

Staff will be handed £1,000 worth of shares but small investors have been locked out of the initial public offering (IPO), with all the available shares going to institutions.

Chief executive Jayne-Anne Gadhia said the decision to take the business public marked “just how far the company has come”.

She said: “Our capability to deliver growth at meaningful scale, the quality of our balance sheet and our absence of legacy issues makes us stand apart from other banks, and these strengths give us the potential to deliver ongoing returns to our shareholders through both capital growth and progressive dividend payments.”

The flotation will bring a significant payday for the bank’s billionaire owners, Sir Richard Branson and American Wilbur Ross, who will both sell some of their stakes but will remain major shareholders. Gadhia and other directors also have a stake in the firm.

The company will have a free float of at least 25 per cent.

The Treasury will also benefit to the tune of £50m due to a clause in the sale of Northern Rock in 2011. The bank bought the remains of the failed lender from the UK government for an initial £820m. Virgin said the latest contribution as a result of the flotation would take the total paid to just over £1bn.

Shares in the lender, which provides mortgages, savings and credit cards to 2.8 million customers, are expected to begin trading this month.

Its entry into the stock market follows the flotation of TSB, which was spun off from Lloyds Banking Group. Meanwhile, Royal Bank of Scotland is spinning off hundreds of branches under its plans to revive the Williams & Glyn brand.

The rush of household names to the stock exchange has revived an interest in IPOs from the public, with some companies seeing the process as a way to strengthen their brand.

Richard Hunter, head of equities at Hargreaves Lansdown, said Virgin Money would have been a prime candidate for such an approach but the relatively small number of shares being sold made it impractical.

He said: “It is disappointing that Virgin has chosen to exclude private investors, particularly given the ubiquity of its brand and the nature of its business.

“Nonetheless, it is an uncomfortable truth that, given the relatively small amount being raised, in terms of convenience and speed to market this may be the prudent financial choice for Virgin Money.”

Virgin Money’s flotation had been widely expected after it started to set aside cash to pay the Treasury’s bonus.

Last month, it set out its stall with figures showing underlying profits jumped to £59.7m in the first six months of the year, from £13.1m a year earlier.

The bank said its flotation would support its growth plans, giving it access to a wider range of capital-raising options and “further improving its ability to recruit, retain and incentivise its key management and employees.”