Virgin to become high street bank
Virgin Money has taken the first step to launch itself as a retail bank by buying a small regional bank.
The credit card provider, which is part of the Richard Branson empire, holds aspirations to become a major player on the high street. Two years ago it tried to buy Northern Rock, and more recently expressed an interest in acquiring the ‘good’ part of the nationalised bank.
As part of its latest move, Virgin Money will offer both savings and mortgages through Church House Trust, a Somerset-based bank, and plans to expand the business under the Virgin brand. It already offers credit cards, savings accounts, insurance and investment products to around 2.5 million customers.
The acquisition has the backing of the Financial Services Authority – and will also please Chancellor Alistair Darling, who last year called for more competition in the banking sector.
Virgin Money says that its research has shown “clear consumer demand for it to enter the banking market”.
The deal values Church House Trust at approximately £12.28 million. Virgin Money says the regional bank’s positives include the fact it is not reliant on wholesale markets for funding, has no borrowing from other banks and its retail deposits are more than double its loan book.
The purchase will be welcomed by savers, as Virgin Money is expected to initially focus heavily on savings products.
“Liquidity management will also reflect best practice and the business will focus on the controlled growth of retail deposits,” it says.
Although Church House Trust has no branches, and currently operates from just one office in Yeovil, Virgin Money sees the purchase as the first step in its ambitions to bring a Virgin Bank to the high street.
Richard Branson, founder of the Virgin group, says: “The Church House Trust business offers us a strong platform for growth. Virgin Money aims to bring simplicity to the UK banking market which has traditionally been a complex sector.”
The group also plans to capitalise on the recent struggles of high street banks.
“The financial crisis has tarnished the reputation of many UK banks,” explains Jayne Anne Gadhia, chief executive of Virgin Money. “Virgin Money will provide a better, different form of banking to its customers, increasing competition in the sector.”
Kevin Mountford, head of banking at moneysupermarket.com, says Virgin Money challenge to the big banks will improve competition for consumers.
"We have already seen Virgin Money play an aggressive role in the credit card market with its best buy products, and we can expect it to do likewise across a broader set of banking products," he adds.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.