Virgin threat to big banks

YOU’vE got to hand it to Sir Richard Branson, he knows how to make a bob or two. If the potential takeover by Clydesdale and Yorkshire Bank (CYBG) for virgin Money comes off, Branson will have pulled off one of his best ever deals.

He will have a stake in the new bank worth about £560m. On top of that, his virgin empire will collect fees from allowing the virgin Money brand name to be used by the enlarged bank.

The virgin Money share price is below the tentative offer price but, even so, it’s still an excellent return for Branson and his fellow shareholders.

virgin Money has been around for only 23 years, in which time it has attracted around 3.3m customers and 3pc of all mortgages. Not bad for a virgin.

It was the financial crash which gave virgin Money its lucky break as Branson beat off rivals to buy the remnants of Northern Rock for £747m from the then chancellor Gordon Brown, himself desperate to do a fast sale to stave off a full taxpayer rescue.

The proposed takeover is also good for the bigger but less visible Clydesdale and Yorkshire, which has gone through many guises over the past few decades. By coming together, Scotland’s third-largest bank would have serious clout with 6m customers, assets of £70bn, 240-plus branches and 5pc of all mortgages. Both have a similar approach to growing SME business and advanced digital strategies. Without being too unkind to Clydesdale, having the more glamorous virgin name ups the ante too.

The more pertinent question is whether such a merger would be best for customers, particularly in lending to SMEs where there is already too little competition.

There is a strong case for having a couple of bigger challengers banks which can shake-up retail banking, still dominated by the High Street’s gang of four with around 80pc of the market.

The gang of four already have cost advantages, so a beefed-up virgin brand could improve competition for customers in products and costs rather than decrease it.

There are some disadvantages to merging two banks, most notably IT integration, as the TSB fiasco showed so vividly. It’s likely there will be some jobs lost. Yorkshire is based in Leeds and is an important local employer, while virgin’s HQ is in Newcastle.

But the regulators and politicians – who have been banging on about more banking competition – are unlikely to have any worries about such a tie-up. They’ll take the view that the UK is best served by having four big banks and a couple of muscly competitors – such as a new virgin Money and Santander – rather than smaller rivals each fighting to take bites out of the big four.

CYBG has until next month to decide whether to go ahead with a formal offer for virgin Money. It had better be quick, as its approach – which some say is too low – may flush out other bidders keen to get into the UK banking market, which still has some of the highest margins in Europe. As Branson owns over a third of the shares, the decision on whether to accept an offer or not will be his call. What has not been mentioned yet is the future of virgin Money’s chief executive, the brilliant Jayne-Anne Gadhia.

Will she stay or will she go? Is there room for both her and David Duffy, CYBG boss?

Shareholders should be told.

Knockout blow

IT’S taken five offers and a mighty tussle but Japan’s Takeda Pharmaceutical has finally thrashed out a deal for drug maker, Shire, with a knockout £46bn offer.

Chairman Susan Kilsby was right to take Takeda to the wire to get a higher price as the takeover propels it into the global league of drugs players, particularly in the US. Such generosity comes at a price. Kilsby has promised as part of the deal to take $1.4bn out of costs, reduce debt, cut jobs and the research budget.

This may not sound like a great start. Savings are equal to about a tenth of Shire’s sales. But Takeda’s boss Christophe Weber wants Shire precisely because of its cancer, stomach and brain drug portfolios and says he is determined to keep the drug pipeline well-watered.

He is also confident that debt can be brought down over the next few years.

It’s not known if Kilsby will stay on, but investors should be grateful she got Shire off the ground.

Maggie Pagano