AFTER results from Clydesdale Bank owner Virgin Money last week highlighted how challenging conditions are in the banking sector, events in Spain raised the prospect of more upheaval in the UK.
Virgin Money posted a near £170 million annual loss after deciding it should provide £500m for potential bad debts amid the slump caused by the coronavirus.
READ MORE: Clydesdale Bank owner signals it may close more branches
The group, which also owns Yorkshire Bank, has yet to see any material impacts of the coronavirus pandemic on the credit quality of its loan book. However, it clearly thinks problems could arise. The end of official coronavirus support schemes could make life very hard for many borrowers.
Virgin Money has provided mortgage and personal loan repayment holidays to more than 100,000 customers and provided support for businesses under schemes such as Bounce Back Loans.
The group is determined to press on with the rebranding exercise that will result in the Clydesdale name disappearing from Scotland’s streets. By the end of March all 55 remaining branches will operate under the Virgin Money brand.
Clydesdale Bank had more than 250 branches in Scotland in 2000, when it was owned by National Australia Bank.
The future of another venerable name may be in question before long with the Spanish owner of TSB apparently preparing 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 £20.5bn bailout from the UK Government during the 2008 financial crisis.
READ MORE: New Lloyds boss gets £5m plus package
Lloyds, which owns Bank of Scotland, yesterday appointed the head of HSBC’s personal banking and wealth operations, Charlie Nunn, to succeed Antonio Horta-Osorio as its chief executive.
Sabadell said last week it could sell TSB after attempts to agree a merger with a bigger Spanish player, BBVA, foundered.
Some may wonder how much interest there will be in TSB given Sabadell’s experience with it.
TSB’s former boss Paul Pester left in 2018 after a botched IT upgrade. Some 1.9 million people using TSB’s digital and mobile banking were locked out following the problems.
TSB recently announced plans to close 73 branches in Scotland with the loss of around 300 jobs, citing a marked shift to 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 expected to increase SME customer numbers by 50 per cent after winning funding of £35 million under a programme to boost the capability of challenger banks, in order to help them win clients from the former Royal Bank of Scotland group.
This was introduced to address EU regulators’ concerns about the £45bn bailout RBS got amid the financial crisis.
READ MORE: Number of SMEs switching from Royal Bank of Scotland well below target
Only around 39,000 SMEs had moved their accounts under the Incentivised Switching element of the programme by September 30. The original target was for 120,000 to switch by August 31.
Under the switching scheme SMEs can get dowries worth up to £50,000 to move to approved lenders, which include Clydesdale Bank. In January, Clydesdale said the pace of switching remained slower than expected.
The coronavirus crisis may have made SMEs reluctant to switch banks.It may also be that the offerings of some challenger banks have not been compelling enough.
Starling Bank has surpassed expectations. The online bank is reported to be in the sights of Lloyds and JP Morgan.
Acquisitions could provide Virgin Money with a short cut to growth in customer numbers.
The takeover of TSB by Virgin Money would likely result in the closure of branches where there is any overlap between the groups’ outlets. Back office jobs would be expected to go under the resulting integration process.
Virgin Money could face competition for TSB from financial buyers who see consolidation potential in the sector.
US private equity firm Cerberus is reportedly bidding to buy Co-Op bank. In 2015, Cerberus bought a £13bn loan book amassed by Northern Rock, which was nationalised amid the 2008 financial crisis. TSB then took on £3bn of the book.
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