Nationwide’s £650m support for Virgin Money

Nationwide has had to pump £650 million into Virgin Money’s Clydesdale Bank unit to maintain the lender’s financial strength, The Mail on Sunday can reveal.

The huge capital injection follows the building society’s £2.8 billion takeover of Virgin Money, which will create Britain’s second largest savings and loans group.

Nationwide booked a larger-than-expected £2.3 billion gain on the deal – the biggest in banking since the financial crisis – fuelling criticism that Virgin Money’s board had sold out on the cheap.

The price tag was so low that Nationwide paid a lot less for Virgin’s assets than they are now deemed to be worth.

But it has now emerged that Nationwide injected fresh equity into Virgin Money to stop Clydesdale Bank’s capital ratios from falling as a result of the buyout.

The bulk of the £650 million infusion was made to bring Clydesdale’s accounting methods into line with the more conservative approach used by Nationwide.

The rest of the injection covered a £250 million payment that tycoon Sir Richard Branson is set to receive for the continued use of the Virgin name over the next four years. Details of the financial support are contained in footnotes to Nationwide’s recent half-year results.

The building society’s chief executive Debbie Crosbie has hailed the Virgin Money deal as a ‘unique opportunity’, which would take the mutual into business banking, diversify funding and ‘strengthen us financially’.

It has promised a ‘gradual’ and ‘measured approach’ to integrating Virgin Money. Nationwide has yet to say how much it will cost to merge Virgin Money’s IT systems and improve its customer service.

Clydesdale’s capital ratios – a key measure of financial strength – are among the lowest in the banking sector, whereas Nationwide’s are among the highest.

The combined group is now the UK’s second biggest provider of home loans, accounting for £1 in every £6 of mortgage balances, and £1 in £8 of retail deposits.

Nationwide confirmed the £650 million support package.

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