Virgin Money’s recently released half-year trading results showed steady growth, with a 5% increase in loans and a 7% growth in business lending. However, there was a 2% decline in mortgage growth, reflecting subdued demand. Despite this, the bank noted an improvement in mortgage demand since January. Customer deposits also rose by 2%, while net interest income for the first half of the fiscal year met expectations. Despite this, the bank warned of lower interest rates on credit cards impacting net interest income in the coming months, although this may be offset by a 5-10% increase in lending expected in the second half of the year.
In line with other UK banks, Virgin Money reported good credit quality and arrears in line with expectations, with the improving economic outlook playing a role in this. However, the weak spot in the report was costs, with the bank expecting a significantly higher cost-to-income ratio in the second half of the year. Virgin Money also announced the cancellation of its dividend and buyback in light of a proposed takeover by Nationwide, which, if approved, could lead to job losses in the future.
The proposed acquisition by Nationwide seems likely to go ahead, with Virgin Money’s management team fully supporting the deal despite the potential job losses. However, not all shareholders are in favor of the acquisition, with Allan Gray, the largest independent investor, looking for a better offer than the current £2.9bn on the table. Despite this, it is unlikely that Nationwide will increase its offer, as it has already revised it higher after being initially rebuffed by Virgin Money in January.
The financial sector as a whole has been seeing a rebound, with global financial stocks showing strong performance. This surge in demand for financial stocks could be why Allan Gray is pushing for Nationwide to increase its offer for Virgin Money. However, it is expected that shareholders will agree to the acquisition when they vote on May 22nd. If the acquisition does not go through, it could lead to a sharp decline in Virgin Money’s share price, which has seen a significant increase year to date, partially due to Nationwide’s offer.
In conclusion, Virgin Money’s trading results show steady growth, with some areas of concern such as lower mortgage growth and expected higher costs in the future. The proposed acquisition by Nationwide seems likely to be approved, despite some dissenting shareholders. The rebound in the financial sector overall could be a factor in shareholders’ decision-making, with the potential for further upside in the industry. Ultimately, the path of least resistance seems to be for the acquisition to proceed, but the final decision will be made by shareholders on May 22nd.
