Debbie Crosbie, chief executive of Nationwide, is not afraid to make deals at Britain's biggest banks.
Last year's ad featuring actor Dominic West as an uncaring bank boss who enjoys canceling branches and mocking customers, angered Banco Santander so much that the lender complained to regulators, claiming it was “tarnishing the reputation of its competitors”.
The ad was designed to capitalize on Nationwide's position as a building society — a type of lender founded in the late 18th century, owned by its customers rather than shareholders, and a type that values more than mere profit.
But this week, Crosby focused more seriously on the UK's entrenched banking hierarchy with the £2.9bn takeover of Virgin Money. The deal will create the second-largest provider of mortgages and savings accounts and give Nationwide a foothold in commercial banking.
While Crosby hailed the deal as “transformational”, the largest acquisition in Nationwide’s history presents the Glaswegian with a multi-faceted challenge that will define her tenure at the helm of Britain’s largest building society.
“It's a big, bold move,” said one person familiar with Nationwide's strategy. But they will want to prove their abilities [extra] Volume actually trickles down to benefit customers.”
If the takeover is to be successful, analysts say, Nationwide will have to deliver on several fronts. The purchase should result in better deals on a range of products for its 16 million members, as customers who have a current, savings or mortgage account with Nationwide are known.
Doing so depends on achieving integration – which is historically difficult to do in the banking industry – without tarnishing its reputation as an institution that values people as much as it values the bottom line.
One area of scrutiny will be jobs. Nationwide said it would make “limited workforce changes” to reduce the “volume of central functions overlapping” as Virgin Money delists from the stock market.
In contrast to shareholder-owned banks, where excess capital is often returned to investors, mutual funds use profits to reinvest in the business or benefit members, including by sharing profits with them. Last year, Nationwide distributed £100 to 3.4 million 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 from smaller exchanges.
Nationwide will have to extract cost savings, said Gary Greenwood, an analyst at Sure Capital. Nationwide has been largely silent on the matter, saying it “will explore opportunities to achieve cost synergies”.
“Ultimately, it has to move like every other operator in this market towards technology and operational efficiency if it wants to compete,” Greenwood said. “They can't keep surplus staff just because they want to be nice to their employees.”
Crosby's task of merging the companies will arguably be more difficult because Virgin Money is itself the product of a merger.
Founded by Jayne-Anne Gadhia in 1995 as Virgin Direct, the bank was bought by Clydesdale & Yorkshire Banking Group for £1.7bn in 2018 in a deal in which the combined group retained the Virgin brand. Nationwide intends to phase out the Virgin brand after six years.
People who have worked with Crosby describe her as a laser-focused worker who wastes no time in meetings. Someone said: “What you see is what you get.” “It's not bullshit at all.”
Crosby, who spent years in operations at CYBG, joined Nationwide about two years ago from TSB, which she led through a restructuring after a disastrous IT upgrade that cost it hundreds of millions. “She has a steely determination about her,” said another.
As Crosby begins the integration process, the Nationwide deal is the latest sign that mutual institutions are becoming more aggressive in their pursuit of growth. In December, Coventry Building Society entered into talks to buy the Co-operative Bank.
This is in contrast to the 1990s, when legislative changes and some unrest on the part of members saw a wave of mutual funds, including Northern Rock and Halifax, swallowed up by shareholder-owned banks.
However, joint ventures have made a “comeback” since the financial crisis, according to SBC president Robin Faith. 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 the departures of Dame Alison Rose and Anne Bowden from NatWest and Starling Bank respectively last year, the Virgin Money deal makes Crosby the most high-profile woman in UK banking.
Although still relatively new to Nationwide, the 53-year-old is promising the idea of the exchange, saying she wants to broaden its appeal to younger generations.
“A lot of people, especially younger people, don't really understand the difference between a mutual organization and a shareholder-owned bank,” Crosby said. “We have been trying to strengthen, enhance and expand the business.”
However, for some, the decision to buy Virgin Money deserves greater scrutiny and should be voted on by Nationwide's 16 million members.
Baroness Ros Altman, a former pensions minister, said allowing a vote would be closer to the “spirit of reciprocity” given the deal was a “significant step with huge costs”. Nationwide said it was not necessary to consult members.
A person familiar with Nationwide's approach said the vast majority of members polled about the deal were indifferent and only a minority opposed it.
Gadea, co-founder of Virgin Money, is a supporter of the deal, saying she is “really pleased” that Nationwide’s values “align with its principles”. [Virgin Money’s] Authentic values of being truly customer focused.”
But Nationwide is buying a company that has fallen short of its original ambitions of breaking the stranglehold of incumbent banks and has lost the confidence of some investors. Virgin Money shares fell over the past two years before rising on news of the Nationwide bid.
Virgin Money ranked 15 out of 16 for overall service quality last year, according to an industry-wide survey by Ipsos. The bank revealed last November that larger-than-expected provisions for bad loans had hurt full-year profits.
While acknowledging the hurdles, people familiar with Nationwide's approach say its mutual status gives it more time to integrate than if it were a listed company beholden to shareholders. It does not, for example, have to provide quarterly or semi-annual updates to investors.
Referring to the provocative TV advert released last year, an adviser to the combined company said Nationwide had spent “a significant amount of money on advertising to say they are different and…” . . They ruffled a few feathers as they went.”
Crosby's challenge will be to convince customers that Nationwide can still be different after swallowing Virgin Money.
