Virgin Money is likely to pose a serious challenge to the UK’s biggest lenders if it takes over Northern Rock and the 600 Lloyds Banking Group branches up for sale.
The European Union told Lloyds it had to sell at least 600 of its branches, accounting for 19 per cent of its total mortgage book of £341bn, following the Government’s bailout of the bank in the aftermath of the 2008 financial crisis.
Northern Rock was nationalised in 2008 and split into good and bad banks, Northern Rock and Northern Rock Asset Management, in January 2010.
Deutsche Bank has been appointed by UK Financial Instruments, the body set up to manage the Government’s stakes in the financial sector, to look at the best way to return Northern Rock back into private ownership.
In January 2010, Virgin Money bought Yeovil-based Church House Trust for £12.3m to launch itself into the retail banking sector.
However, the bank was so small it meant Virgin would have to start from scratch in terms of building a branch network.
When the CHT deal was first announced, many were sceptical as to how much of an impact Virgin would have without a branch network. At the time, Virgin refused to disclose if it would distribute its products through intermediaries.
Virgin Group chairman Sir Richard Branson has reportedly assembled a £3bn fund to buy both the Lloyds’ branches and Northern Rock. A deal to buy the Lloyds’ branches alone would make Virgin Money the sixth-biggest high-street lender in terms of branch numbers.
Speaking to Money Marketing, a Virgin spokesman says the company is planning to take “a close look” at the intermediary channel.
London & Country head of communications David Hollingworth says the acquisitions would instantly elevate Virgin to a position where it could compete with the biggest banks.
He says: “With the branches on offer from Lloyds, Virgin has an opportunity to have national reach in terms of a branch network almost overnight and that is something that has not been possible until now.
“Virgin is not new to the game either, so there is potential there for it to become quite a serious outfit very quickly.”
Emba group sales and marketing director Mike Fitzgerald says the Virgin brand is strong enough to compete with the biggest banks despite the fact the deal would still leave it significantly smaller than its next biggest rival, RBS.
He says: “Consumers are crying out for a change from the tired old failures we have in our banking system. They are longing for a new name. It is similar to when Virgin went into holidays and airlines, people said it would not work. But it is such a strong, vibrant brand and I think it will punch above its weight.”
If I Were You managing director Rob Clifford, former Virgin Money UK managing director, has no doubt the lender will become a major force.
He says: “The brand has serious consumer appeal and trust, which has to be good news for banking.”
The intermediary distribution channel is valuable in achieving volume lending but John Charcol senior technical manager Ray Boulger says the lender has had a difficult past with intermediaries.
He says: “When Virgin initially launched into the market with the Virgin One Account, it was negative about intermediaries but after a while it used them. I think it realised that was the only way it could achieve what it wanted.”