In a significant financial development, Nationwide Building Society has recorded an extraordinary £2.3 billion accounting gain from its Virgin Money UK acquisition, whilst simultaneously reporting a 24% decline in underlying interim profits.
The UK’s largest mutual organisation, serving 16 million customers, attributes this substantial gain to the £2.8 billion purchase price for Virgin being notably lower than its book value and fair-value asset assessment. The society’s underlying profits experienced a reduction to £959 million in the six months leading to September 30, primarily due to higher savings rates offered to customers and base rate change timing effects.
Member benefits, comprising superior savings and mortgage rates alongside additional perks, saw an increase from £885 million to £950 million. Chief Executive Debbie Crosbie indicated positive momentum towards repeating the society’s Fairer Share payment scheme, which previously distributed £100 to 3.85 million members.
The acquisition has solidified Nationwide’s position as the second-largest mortgage provider in the UK, expanding its presence in credit cards and business banking sectors. The society’s controversial advertising campaign, featuring actor Dominic West portraying an unscrupulous bank executive, has particularly resonated with younger demographics, resulting in a remarkable surge in student current account applications from 14,700 to 39,000.
Despite the substantial accounting profit, Nationwide’s core capital ratio has decreased significantly from 28.4% to 19.6%, reflecting increased risk-weighted assets from the Virgin Money integration. Credit quality remains robust, with merely £7 million allocated for potential defaults, marking a considerable reduction from the previous £54 million provision.
The society’s net interest margin widened to 1.5% from 1.46%, though this figure represents a decrease from the full-year measurement of 1.66%. Industry analyst John Cronin from Seapoint Insights emphasised the unexpected scale of the Virgin accounting gain, highlighting its reflection of positive fair value adjustments and tangible equity improvements since the initial deal announcement.
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