Nationwide chief executive Debbie Crosbie is not afraid of taking pot shots at Britain’s biggest banks.
An advert last year featuring actor Dominic West as an uncaring bank boss who relished axing branches and mocked customers so riled Santander that the lender complained to regulators, claiming it “discredited and denigrated” rivals.
The advert was designed to capitalise on Nationwide’s status as a building society — a type of lender founded in the late 18th century, owned by its customers rather than shareholders, and one that prized more than just profit.
But this week Crosbie took more serious aim at the established banking hierarchy in the UK with the £2.9bn acquisition of Virgin Money. The deal will create the second-largest provider of mortgages and savings accounts and give Nationwide a foothold in business banking.
While Crosbie hailed the transaction as “transformational”, the largest takeover in Nationwide’s history presents the Glaswegian with a multipronged challenge that will define her tenure at the top of Britain’s largest building society.
“It’s a big, bold move,” said a person familiar with Nationwide’s strategy. But “they’ll want to demonstrate their [extra] scale is actually trickling through to benefit customers”.
If the acquisition is to be a success, say analysts, Nationwide will have to deliver on several fronts. The purchase must lead to better deals on a range of products for its 16mn members, as customers who have a current or savings account or a mortgage with Nationwide are known.
Doing so is reliant on pulling off an integration — historically difficult to execute in the banking industry — without besmirching its reputation as an organisation that values people as much as it does the bottom line.
One area of scrutiny will be jobs. Nationwide said that it would make “limited workforce changes” to reduce “the size of overlapping central functions” as Virgin Money delists from the stock market.
In contrast to shareholder-owned banks, where excess capital is often returned to investors, mutuals use profits to reinvest in the business or benefit members, including through sharing profits with them. Last year Nationwide distributed £100 to 3.4m eligible members.
Founded in 1884 and headquartered in Swindon, about 80 miles west of London, Nationwide is no stranger to deals. Over its history, the group has expanded through more than 200 acquisitions, mostly of smaller mutuals.
Gary Greenwood, an analyst at Shore Capital, said that Nationwide will have to extract cost savings. Nationwide has been largely tight-lipped on the subject, saying that it “will explore opportunities to achieve cost synergies”.
“Ultimately it’s got to move like every other operator in that market towards technology and operational efficiency if it wants to compete,” said Greenwood. “They can’t keep surplus headcount just because they want to be nice to their employees.”
Crosbie’s task of melding the businesses will arguably be made harder because Virgin Money is itself the product of a merger.
Co-founded by Jayne-Anne Gadhia in 1995 as Virgin Direct, the lender was bought by Clydesdale & Yorkshire Banking Group for £1.7bn in 2018 in a deal where the combined group kept the Virgin brand. Nationwide intends to phase out the Virgin brand after six years.
People who have worked with Crosbie describe her as a laser-focused operator who wastes no time in meetings. “What you see is what you get,” said one. “She’s absolutely no nonsense.”
Crosbie, who previously spent years in operations at CYBG, joined Nationwide almost two years ago from TSB, which she led through a restructuring after a disastrous IT upgrade cost it hundreds of millions. “She has a steely determination about her,” said another.
As Crosbie sets about the integration, Nationwide’s deal is the latest sign that mutuals are becoming more aggressive in their pursuit of growth. In December, Coventry Building Society entered talks to buy the Co-op bank.
It is a contrast to the 1990s, when legislative changes and some agitation by members, saw a wave of mutuals, including Northern Rock and Halifax, swallowed up by shareholder-owned banks.
Mutuals have, however, made a “comeback” since the financial crisis, according to Building Society Association head Robin Fieth. Today, building societies have a 23 per cent share of the UK mortgage market and 19 per cent of the cash savings market, according to the BSA.
Following last year’s departures of Dame Alison Rose and Anne Boden from NatWest and Starling Bank respectively, the Virgin Money deal also makes Crosbie the highest-profile woman in UK banking.
Though still relatively new to Nationwide, the 53-year-old appears an evangelist for the idea of the mutual, saying she wishes to broaden its appeal to younger generations.
“Too many, particularly younger people don’t really understand the difference between a mutual organisation and a shareholder-owned bank,” said Crosbie. “We’ve been trying to strengthen, promote and expand the business.”
For some, however, the decision to buy Virgin Money is deserving of greater scrutiny and should be voted on by Nationwide’s 16m members.
Baroness Ros Altmann, a former pensions minister, said allowing a vote would be more in “the spirit of mutuality” given the deal was “a significant move with huge expense”. Nationwide has said it is not required to consult members.
A person familiar with Nationwide’s approach said that the vast majority of members it had polled on the deal were indifferent and only a minority were opposed.
Gadhia, the co-founder of Virgin Money, is a backer of the deal, saying she was “really pleased” that Nationwide’s values “align with its [Virgin Money’s] original values of being really customer-focused”.
But Nationwide is buying a business that has fallen short of its original ambitions of breaking the grip of incumbent banks and has lost the confidence of some investors. Virgin Money shares had fallen over the past two years before surging on the news of Nationwide’s bid.
Virgin Money ranked 15th out of 16th in overall service quality last year, according to a industry-wide survey conducted by Ipsos. Last November the bank revealed that a larger-than-expected provision for bad loans had hit full-year profits.
While recognising the hurdles, people familiar with Nationwide’s approach say that its mutual status affords it greater time to pull off the integration than if it were a listed company beholden to shareholders. It does not, for example, have to provide quarterly or half year updates to investors.
Pointing to last year’s provocative TV advert, one adviser to the mutual said that Nationwide had spent “a whole load of money advertising to say they’re different and . . . ruffled a few feathers as they went”.
Crosbie’s challenge will be convincing customers that Nationwide can stay different after swallowing Virgin Money.
