Virgin Money UK shareholders will vote on the proposed £2.9billion takeover of Nationwide Building Society next week without having seen the audited results from the last half-year due to delays caused by the change in auditor.
PwC resigned from its position as auditor due to an unidentified “conflict” of interest arising out of the Nationwide deal. EY has replaced PwC, who is also the auditor for Nationwide.
The publication of the interim results for March 31, which would normally be done in early May, has been postponed until June 13. Virgin Money shareholders will vote on May 22, on a series of resolutions that would transfer the business to Nationwide through a court-approved scheme of arrangement.
Virgin Money released an unaudited statement of trading on Tuesday. It did not provide a profit number, but warned that “final adjustments” might be needed in the audited version.
Virgin Money UK added, “At this time, Virgin Money UK confirms that it has not been informed of any matter, which could result in a need to change the information in this updated in relation to EY’s report”.
Virgin Money and Nationwide announced in March their all-cash proposal. The merger will increase the mutual ‘s firepower for business banking, current accounts, and make it Britain’s second largest mortgage provider behind Lloyds Banking Group.
Virgin Money officials said there was no conflict of interests at EY due to the Chinese walls that separate the two teams of auditing staff at the accounting firm.
Virgin Money has also warned that its mortgage business contracted in the six-month period ending March 31, as redemptions exceeded new home loan applications. The mortgage book dropped by 2 percent to £56.6 billion.
Positively, the report said that mortgage applications increased between the first quarter and second, indicating that a recovery would be seen in the second half. The growth of business banking and credit cards by 5% offset the slowdown in mortgage lending.
It stated that its net interest margin – a key factor in determining profitability – would be under pressure during the second half due to a drop in the effective interest rates charged on its cards, and because of “ongoing” competition.
The third setback will be the increase in transaction costs that will raise its cost/income. The bank will pay Goldman Sachs, JP Morgan and its investment banks £30.5m in fees. Its lawyers, including Clifford Chance, £5.7m and Teneo its public relations advisor, £950,000.
David Duffy, 62 years old, who will receive £3,49 million in exchange for his Virgin Money shares, has not commented, but he did say in a statement that “we have delivered on our strategic goals in line with expectations over the first half of the year.” We expect headwinds to continue through the second half, but we are still well positioned to grow in our target segments.
Virgin Group has irrevocably accepted the deal and plans to vote their 14.6% stake in favor of the 218p per share offer. Virgin Money will pay Sir Richard Branson’s group a fee of £250 million to get out of the licensing agreement to use the Virgin brand. The deal is expected to be finalized in the fourth quarter of 2024, although it still needs approval from the regulators and courts.
Virgin Money has its origins in 1995, , when Branson founded it as Virgin Direct. Virgin Money was expanded by the acquisition of Clydesdale Bank and Yorkshire Bank, as well as parts of the Northern Rock empire.
Virgin Money shares fell by 1/2p or 0.2 percent to 214 1/2p.
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