Page last updated at 10:49 GMT, Friday, 8 January 2010

Virgin Money deal paves way for own High Street bank

Virgin boss Richard Branson
Virgin Money has been looking for a way into the UK retail banking sector

Virgin Money has positioned itself for an assault on the UK retail banking market after buying regional bank Church House Trust.

Virgin will pay £12.3m for the bank and invest £37.3m into the business.

Under the Virgin Money brand, the company will use the bank to offer savings and mortgages products.

Analysts say that the deal allows it to control a banking licence and potentially to cherry-pick some sections of Northern Rock in time.

"The Church House Trust business offers us a strong platform for growth," said Virgin group founder Sir Richard Branson.

'Sound base'

Jayne Anne Gadhia, chief executive of Virgin Money, said the company would be in a position to provide consumers with a different type of banking experience.

Virgin wants to expand the repertoire of products and new customers
David Black, Defaqto

"The financial crisis has tarnished the reputation of many UK banks," she said.

"Our aim is to make everyone better off in the way we do business, by offering good value, treating employees well, making a positive contribution to society and delivering a growing profit to shareholders."

Virgin Money has provided services such as credit cards, savings and mortgages, as part of a partnership or joint venture with other organisations such as Bank of America and the Royal Bank of Scotland.

Now the deal to buy the small Somerset-based Church House will allow it to build a stack of its own banking products - starting with online banking - because it controls Church House which has a banking licence. This could lead to further acquisitions, possibly including some of the "good bank" sections of Northern Rock.

David Black, banking analyst at Defaqto, said that it would not be a surprise to see a Virgin-branded bank on the High Street before long, leading to more competition and so greater choice for consumers.

"Virgin wants to expand the repertoire of products and new customers," he said.

Banking analyst Ralph Silva said this deal allowed the bank to offer products under its own brand and in its own right.

Long-awaited move

The chairman of Church House Trust, David Batten, said the deal was good news for its shareholders and customers.

In order to be able to take people's money to offer current and savings accounts in its own right, a business must gain permission. An application is made to the City regulator - the Financial Services Authority. It checks whether the business has the funds and expertise in place to run a bank. It is also important for the detail of compensation if the bank goes bust

"Church House Trust's conservative business model has proven to be attractive to Virgin Money as a sound base from which to fulfil its banking ambitions," he said.

Church House, which does not operate a branch network, has about 3,000 private customers and £50m in deposits.

The bank - which has only 10 members of staff - will see its investment arm bought out by its management.

Virgin Money has more than 2.5 million customers and offers a range of financial services including credit and pre-paid cards, savings, individual savings accounts, insurance and life assurance products.

Virgin used to provide mortgage services in a joint venture with the Royal Bank of Scotland, but RBS bought Virgin out of that business in 2001. The credit card business is run with Bank of America.

Virgin Money has been looking for a way into the UK retail banking sector for a while. Two years ago, it failed in its bid to buy Northern Rock.

But having control of a business with a banking licence would allow it to buy certain parts of Northern Rock, without having to buy it all in order to gain the licence too, some analysts have argued. It would also enter High Street banking with a brand that is already recognised by customers.

The Financial Services Authority granted Virgin Money control over a licensed bank on 23 December. The licence comes into operation once Virgin creates a change of control at an existing bank.

The government has been keen to encourage new entrants into the banking sector by selling off chunks of the taxpayer-backed institutions.

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Scotland on Sunday Online Terry Murden: A sullied profession but they still queue up to join the banking club - 6 hrs ago Santander races to stamp its name all over Britain's high streets - 6 hrs ago
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This is Money Comment: Forever blowing bubbles - 31 hrs ago
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