touted for a return to the mainstream banking fold ever since its
bid for Northern Rock failed earlier this year. William Cain spoke
to CEO Jayne-Anne Gadhia about what might have happened had the
deal gone ahead – and her future plans for the business.
Virgin Money UK, the consumer finance arm of VirginGroup, is to launch a charitable donations website following its
sponsorship of the London Marathon – continuing the business’ move
into social media financial services.
Virgin Money in the US has already taken
big steps in social networking and lending, buying a majority stake
in peer-to-peer business CircleLending, a provider of loan
administration services between friends and relatives. The
business’ UK CEO, Jayne-Anne Gadhia, who did not want to give full
details ahead of an official launch in the coming weeks, said the
new business would build on Virgin Money’s £17 million ($27.9
million) five-year sponsorship of the London Marathon, which starts
in 2010.
Go deeper with GlobalData
She said it would be more along the lines
of a charitable donations website, like Justgiving.com, than a P2P
platform like CircleLending. Justgiving allows people to make
donations online to friends and relatives performing fundraising
activities. It charges a 5 percent fee to register donations for
Gift Aid, a tax benefit which increases the overall level of
donations. A donation of £10 would be worth just under £12 after
registration for Gift Aid and subtraction of the fee..
While Justgiving has raised £250 million
for charity since it was founded in 1999, Virgin Money would catch
up quickly if it could leverage its sponsorship to persuade London
Marathon competitors, who raise an average of £50 million each
year, to use their own version of the site.
Plans on hold
But Virgin Money, which currently operates
a partnership model with Bank of America in credit cards, Royal
Bank of Scotland (RBS) in insurance and Citi in investments, has
put on hold plans to become a fully-fledged UK retail bank until
sometime in 2009.
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By GlobalDataCurrently it uses RBS’s balance sheet for
mortgages and deposits. But Gadhia, who led the business’s failed
£1.25 billion takeover bid for Northern Rock last year, said a deal
was in place with “a very large financial services business” to
start issuing mortgages. Virgin Money is also looking at entering
the savings market, again with a partner. But she added Virgin was
happy to sit on the sidelines until conditions improved.
With recession predicted in the UK economy
following a decline in third-quarter GDP of 0.5 percent, businesses
with little or no exposure to increasing levels of loan write-offs
may have an opportunity to enter the market and pick up market
share when conditions start to improve. Retailer Tesco recently
indicated it will enter the mortgage and current account market,
with margins in the industry improving after the volume-led growth
of the past decade, in a similar timeframe (see RBI
597).
She said Virgin’s new business would be
similar to those under Virgin One, the 50:50 joint venture with
RBS, set up in 1998. RBS bought the remaining 50 percent stake in
the venture in 2001 for £100 million.
Gadhia said the One Account was the first
to introduce interest payments which were calculated on a daily
basis, rather than from the figure at the start of the month, now a
widely adopted practice in the industry. She said the new business,
when launched, would look at offering similar innovations to “give
customers the financial flexibility they need”. The business would
eventually look at setting up as an FSA-regulated bank, but was
currently happy in its place on the sidelines, Ghadia added.
Virgin was not looking at taking deposits,
she stressed, until it had a well-rounded plan about how it would
place funds into the market, probably through the mortgage
business. She said the deposits market in the UK was “acutely
competitive” and previous predictions that the brand could bring in
deposits of up to £5 billion a year would have to be revised
downward.
Northern Rock
Virgin Money has been looking at building
a more substantial presence in the retail banking market since its
failed bid for Northern Rock last year.
In previous interviews, Gadhia has said
she understood from representatives of Goldman Sachs, which advised
the British government on Northern Rock, that the odds were 50:50
between nationalisation and acceptance of the Virgin offer. Given
the collapse of Bradford & Bingley and the rescue of HBOS by
Lloyds TSB, both better funded banks than the Rock, Gadhia was
asked whether Virgin had had a lucky escape.
She said: “Do I ever wake up and think,
‘Thank God we didn’t do that?’ No. Do I ever wake up and say, ‘Oh,
I wished we’d got it?’ No!”
She added: “I’m still confident the
proposal we put forward would have worked economically and
commercially, but how that would have performed in this market is
anyone’s guess.”
Gadhia said had the business remained a
listed company as Virgin had proposed, she suspected “the
confidence that we have seen evaporate around RBS and others would
have affected the business in a way we could not have foreseen when
we were trying to construct that transaction”. She added Sir Brian
Pitman, former chairman of Lloyds TSB, who was positioned to chair
the Virgin consortium’s management team, had insisted on planning
for a deep recession starting towards the end of 2008.
“It was for that reason we structured the
deal the way we did, and we received some criticism for it because
some of the press felt we had put in a deal which was too
‘Virgin-friendly’. The truth was we put in the only deal we could
afford given the risk of recession.”
