Nationwide Building Society has come under fire from a group of members over its planned £2.9bn takeover of Virgin Money.
The group of members, who have set up a campaign website, argue that the deal offers poor value for money and is being rushed through, and are demanding a member vote.
Nationwide announced the deal – “a binding offer that Virgin Money’s directors intend to recommend be accepted by their shareholders” – to members last month, saying it offers “compelling benefits for Nationwide’s current and future members”.
The move, like Coventry Building Society’s proposed takeover of the Co-op Bank, comes as the UK mutuals sector looks for ways to build scale. While there are successful examples of sector growth in this fashion – notably in the US where there has been a wave of bank acquisitions by credit unions – they also present a risk, and the process of integration also offers challenges.
But Nationwide is confident that the deal will strengthen it financially “and presents an opportunity to accelerate our strategy. It delivers greater value for our members and broadens the range of services we offer to include those that many members have requested.”
The acquisition, it adds, will deliver a larger customer and deposit base, offering financial strength “to support the continued provision of savings and lending rates for members in the future that are, on average, better than across the market in general”.
Virgin Money has “a strong personal lending business and credit card range”, says the building society, adding: “For a while, we have considered how to extend the benefit of our mutual model to include business banking. This acquisition will bring the established business banking services of Virgin Money within the Nationwide Group. In the long term, we would make these, and accounts for clubs and charities, available to our members.”
Related: Coventry Building Society agrees terms for takeover of Co-op Bank
The move would also grow the society’s branch network, says Nationwide, which has also pledged to extend its Branch Promise by two years, “meaning that everywhere we have a Nationwide branch, we promise to still be there until at least the start of 2028”.
Stressing its commitment to the mutual model, Nationwide added: “The integration of the two businesses would be undertaken carefully over several years, and it will be designed to avoid disrupting services or customers.
“The board believes that the benefits that this acquisition will bring to our current and future members are substantial and could not be delivered by Nationwide on its own.”
But members opposed to the deal claim that Nationwide is looking to buy “a poorly-rated bank” and that not holding a vote by member-owners runs “against the democratic ethos of a mutual society”.
They argue that the deal will line the pockets of Richard Branson and other wealthy Virgin Money shareholders, while “Nationwide customers may be worse off financially, and Nationwide will be less protected in a downturn, if this deal goes ahead – paying higher rates to borrow, and getting a lower return on the their savings – than they would be if Nationwide used the money instead to directly benefit its customers or held it in reserve”.
Their doubts are shared by the London Standard’s City editorial column, which notes that Virgin Money shareholders will get a vote on the deal – and argued that “£2.20 a share is … too much for this ragtag bank formed of various mergers and given a red lick of smiley paint”.
And peer and former pensions minister Ros Altmann said: “The whole beauty of a mutual is that it is run in the interests of its members who have voting rights too and giving them the chance to exercise their right in a major transaction seems sensible.”
Meanwhile, it has been revealed that Nationwide is expected to cover £41m in fees and expenses, with Virgin Money spending £38m. Around £10m of fees will be due in relation to scrutiny by the Prudential Regulation Authority and the Competition and Markets Authority.
However, Nationwide has released its own member polling, which found that 44% of its members are in favour of the merger, 48% are neutral and only 8% of the 10,499 members surveyed are opposed.
And Nils Pratley, in the Guardian, notes legal obstacles to offering Nationwide members a vote, with the 1986 Building Societies Act placing no requirement for a society “to hold a vote if it is buying a business that looks roughly like its own“. This means a member vote would contravene the Takeover Code, he argues, as it does not allow bidders to “insert conditions into an offer that “depend solely on subjective judgments”.
The move, alongside Coventry Building Society’s proposed acquisition of the Co-op Bank, comes against a backdrop of mutuals seeking to build scale, and has been welcomed by commentators in the co-op and mutuals movement. Peter Hunt from Mutuo said of the Nationwide deal: “Building societies have been on the back foot for 35 years, being taken over by banks and having to justify their existence. It has the potential to change the weather.
“Nationwide’s top team has managed the business well, which gives me confidence. This has the potential to be a watershed for the whole mutual sector. If I am going to trust anyone, I am going to trust them.”
Robin Fieth, head of the Building Societies Association, also welcomed the Nationwide deal, saying: “There are many parts of financial services which would benefit from the mutual model, not least business banking.”
Nationwide insists the deal will “create a stronger building society that can offer better mortgage and savings rates compared to the market average”, enable to offer a broader range of products and services, and improve its ability to maintain benefits such as its Fairer Share Payment, which last year paid £100 to each qualifying member.
With regard to the question of a member vote, it said it has “undertaken several polls of its members, reaching over 10,000 people, showing only very small numbers view the deal negatively. A member vote is not required under Nationwide’s own rules or the Building Society Act, and Nationwide’s board believes that this deal is in the best interest of current and future members.”