More upheaval in prospect in the banking sector


AFTER the results of Virgin Money, owner of Clydesdale Bank, last week underscored just how difficult conditions are in the banking sector, events in Spain raised the prospect of further upheaval in the UK.

Virgin Money recorded an annual loss of almost £ 170million after deciding it should provide £ 500million for potential bad debt amid the coronavirus crisis.

READ MORE: Clydesdale Bank owner reports he could close more branches

The group, which also owns Yorkshire Bank, has yet to see a significant impact of the coronavirus pandemic on the credit quality of its loan portfolio. However, he clearly believes that problems could arise. The end of official coronavirus support programs could make life very difficult for many borrowers.

Virgin Money has granted mortgage and personal loan repayment holidays to more than 100,000 customers and has supported businesses through programs such as Bounce Back Loans.

The group is determined to continue the rebranding exercise that will cause the name Clydesdale to disappear from Scottish streets. By the end of March, the remaining 55 branches will operate under the Virgin Money brand.

Clydesdale Bank had over 250 branches in Scotland in 2000, when it was owned by National Australia Bank.

The future of another venerable name may soon be in question, as the Spanish owner of TSB apparently prepares to sell the bank.

Spain’s Sabadell acquired TSB for £ 1.7 billion in 2015 from Lloyds Banking Group, which was required by EU regulators to sell more than 600 branches after receiving a 20.5 billion bailout. British government pounds sterling during the 2008 financial crisis.

READ MORE: New Lloyds boss gets £ 5million plus package

Lloyds, owner of Bank of Scotland, yesterday appointed Charlie Nunn, head of personal and wealth banking at HSBC, to succeed Antonio Horta-Osorio as chief executive.

Sabadell said last week that he could sell TSB after failed merger attempts with a larger Spanish player, BBVA.

Some may wonder what interest there will be in TSB given Sabadell’s experience with him.

Former TSB boss Paul Pester left in 2018 after a botched IT upgrade. Some 1.9 million people using TSB’s digital and mobile banking services have been stranded as a result of the problems.

TSB recently announced plans to close 73 branches in Scotland with the loss of around 300 jobs, citing a marked shift towards digital banking.

But potential bidders for TSB could include Virgin Money. This was created after the former Clydesdale and Yorkshire Bank group bought Virgin Money in 2018 and then adopted its name.

In September, Virgin Money said it plans to increase the number of SME customers by 50% after securing £ 35million in funding as part of a program to build the capacity of challenger banks, to help them gain clients from the former Royal Bank of Scotland group.

This was introduced to address concerns from EU regulators over the £ 45 billion bailout package obtained by RBS amid the financial crisis.

READ MORE: Number of SMEs leaving Royal Bank of Scotland well below target

As of September 30, only about 39,000 SMEs had transferred their accounts under the incentive conversion element of the program. The original goal was for 120,000 people to change by August 31.

As part of the transfer scheme, SMEs can get dowries worth up to £ 50,000 to switch to approved lenders including Clydesdale Bank. In January, Clydesdale said the pace of change remained slower than expected.

The coronavirus crisis may have made SMEs reluctant to change banks. It is also possible that the offers of some challenger banks were not sufficiently convincing.

Starling Bank exceeded expectations. Online banking is reportedly in the sights of Lloyds and JP Morgan.

The acquisitions could provide Virgin Money with a shortcut to customer growth.

The takeover of TSB by Virgin Money would likely lead to the closure of branches in the event of an overlap between the groups’ outlets. Back office jobs should go through the resulting onboarding process.

Virgin Money may face competition for TSB from financial buyers who see potential for consolidation in the industry.

US private equity firm Cerberus is reportedly making an offer to buy Bank Co-Op. In 2015, Cerberus bought a £ 13bn loan portfolio amassed by Northern Rock, which was nationalized amid the 2008 financial crisis. TSB then assumed £ 3bn of the pound.

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