CYBG, the owner of Yorkshire Bank and Clydesdale Bank, is planning an ambitious takeover bid of Virgin Money; a move which would make CYBG the biggest challenger bank to the UK’s leading incumbent financial institutions.
The bid, which is believed to be around £1.6 billion would see Virgin Money keep its brand name but combine the might of the two organisations. Virgin Money confirmed that it had received a preliminary approach from CYBG on Monday morning and that the board was in the process of reviewing the proposal.
Since the announcement shares in Virgin Money rose by nearly 8% and shares in CYBG rose by 1%.
Challengers in The Making
Virgin Money was founded in 1995 and expanded in 2011 when it purchased the shattered remnants of Northern Rock Bank for just under £750 million. Currently, the bank has around 3.3 million customers and over 74 branches nationwide.
Combining with CYBG – which has 169 branches and 2.8 million customers – could propel the organisation to become one of the UK’s largest challenger banks with over six million customers and a balance sheet of between £60-£70 billion.
Speaking on the announcement, officials from CYBG said the move has the potential to “create the UK’s leading challenger bank offering both personal and SME customers a genuine alternative to the large incumbent banks.”
The potential merger has been hailed as a prime opportunity for both brands to diversify their services. Through the deal CYBG would be able to expand in scale in the mortgage market while also moving into the credit market. For Virgin Money, the move offers inroads into providing current accounts and small business lending.
Additionally, this merger could help alleviate the financial strain placed on CYBG by the ongoing Payment Protection Insurance (PPI) scandal. The firm put aside another £350 million to accommodate for compensation payments last month.
Branson Set to Benefit
Sir Richard Branson’s Virgin Group is the bank’s biggest shareholders with a 34.8% stake in the firm, and under CYBG’s proposal makes the holding worth an impressive £560 million.