US billionaire backs Virgin's crack at UK banking market

Ahead of today's RBS auction deadline, Virgin Money joins forces with turnaround specialist Wilbur Ross.

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Last Updated: 31 Aug 2010

A substantial boost for Virgin’s bid to become a big player in the UK banking market: US investor Wilbur Ross has just bought a 21% stake in its financial arm Virgin Money for £100m. What’s more, he’s promised to pump in more cash if Virgin can find suitable acquisitions – ideally the 318 RBS branches currently up for sale (although Spanish bank Santander seems to be the front-runner). But the wider point is that the involvement of Ross – a renowned bottom-feeder, who made a fortune from the wreckage of the Japanese banking sector in the late 1990s – does at least suggest that things may be on the up…

Virgin Money said Ross’s cash injection - £100m up front, plus up to £500m for acquisitions - would allow it ‘to accelerate the expansion of its full-service retail bank and the creation of a branch network’. Their theory is that the market is ripe for a fresh approach; this weekend Ross said there was ‘a chance to reinvent the system… a financial institution that deals with small savers and SMEs and does not try to run hedge funds.’ Amen to that – though since investment banking has been where these banks have made their money, we’ll be interested to see how it works. It’ll also be easier said than done: Virgin has a full banking license, after buying the tiny Church House Trust back in January, but rolling out the kind of infrastructure it will need to challenge the likes of Lloyds and Barclays is a tough ask.

The easiest option, of course, would be to buy it ready-made. Hence why Virgin Money wants to buy the RBS branches that the Government has put up for auction (the deadline for bids is today). This deal could instantly make it the UK’s sixth biggest bank, with a 5% share of SME customers and a 2% share of the retail market. Rumour has it that Santander is likely to submit the highest bid, so Virgin will probably have to rely on a promise to protect jobs (unlike Santander, which will presumably be on the look-out for the dreaded ‘efficiencies’). Failing that, it may have to wait for whatever bits of Lloyds or Northern Rock end up on the market, or even settle for slower organic growth.

But it’s the involvement of Ross that’s the most interesting aspect of this deal. He specialises in buying distressed assets – companies that are in trouble and need turning around – and obviously sees parallels between the UK and 1990s Japan (‘a classic distressed situation’, he called it this weekend). So he clearly thinks there’s a lot of potential in this market. And with a heavyweight backer like him, Virgin’s bid to take on the present incumbents certainly looks a lot more credible.


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