CYBG looks like it’s going to succeed with its bid to create what could, if you were feeling very charitable, be described as a “super challenger” bank via a merger with Virgin Money.
The owner of the Clydesdale and Yorkshire banks has tabled a sweetened proposal, which can best be described as “uninspiring”.
It would give Virgin shareholders 1.2125 CYBG shares for each share they hold, up from 1.1297 when it made its first strike last month.
Because CYBG shares have fallen in the intervening period the offer is actually now worth less in cash terms than the original. However, it gives Virgin Money 38 per cent of the combined group, up from 36.5 per cent, so represents a small but significant upgrade.
In the view of Ian Gordon, one of the smartest banking analysts on the block, what’s on the table is still wildly skewed towards CYBG investors. But it has proved enough to get Virgin Money bosses around the table.
Why? The only other plausible buyer, Spain’s Sabadell, is basically out of the running after its botched attempt to shift its UK challenger bank TSB on to IT new platform.
CYBG is thus the only game in town, and a combination of the two would allow bosses to knock out a big chunk of cost. Combined, they’d also have a better chance of taking on the big five (HSBC, Barclays, Lloyds, RBS and Santander).
Mr Gordon reckons Virgin shares are undervalued, even after having risen recently, and he’s right. But there’s a reason for that: The market doesn’t think much of Virgin Money’s prospects as an independent entity.
That being the case, I’d bet on another small sweeter to get its board to sign on the dotted line, and a nice bung for Sir Richard Branson for licensing the Virgin brand, which the enlarged CYBG would like to use.
As for consumers? There is considerable appetite out there for a bank that does things differently, and doesn’t treat them as an after thought at best.
Whether this “super challenger” will do that is an open question. Remember, TSB was supposed to be a bold new banking force, only for it to turn out to be anything, as its disastrous handling of that IT fiasco proved.
Cutting costs will be CYBG Virgin’s top priory if and when this deal gets done. Cuddling customers will have to wait on that.
