Virgin Money buys minnow for retail bank launch

Published 08th Jan 2010

Virgin Money, which tried to buy Northern Rock before its nationalisation two years ago, today gained a foothold in retail banking through the acquisition of Church House Trust in a deal valuing the regional bank at £12.3 million.

The group, part of Sir Richard Branson’s Virgin empire, said the deal, already approved by the Financial Services Authority, would “provide the platform from which [to] develop a retail banking business in the UK offering a full range of products to consumers under the Virgin Money brand”.

Church House Trust, which is based in Yeovil, Somerset, is a minnow compared to Virgin’s previous banking target. For the financial year ended 31 December 2008, it reported operating income of £4.05 million and profit before tax of £450,000 million.

The bank, in which the Cayzer Trust is a major shareholder, offers both deposits and mortgages, and Virgin said its business model did not rely on the wholesale markets for funding, unlike some of its larger regional cousins. Retail deposits are more than double its loan book.

The recommended deal comes just days after it emerged that Virgin Money had registered it interest in buying the “good bank” part of Northern Rock following the Treasury’s decision to split the failed lender into a good bank and a bad bank.

Virgin Money said that its research over the past two years had “shown consistently that there is a clear consumer demand for Virgin Money to enter the banking market” and that it would be “both a trusted deposit taker and mortgage lender”.

Virgin Money currently has more than 2.5 million customers, offering credit cards, savings and investment products, including pensions and bonds, and both general insurance and life assurance products.

It said that following the acquisition of Church House Trust, Virgin Money would be well capitalised with an initial Tier 1 ratio - which is a key measure of a bank's financial health - in excess of 35 per cent and it would and inject £37.3 million of new capital into the regional bank. Liquidity management will also reflect best practice and the business will focus on the controlled growth of retail deposits.

Virgin Money, which itself reported pre-tax profits of £27.5 million turnover of £98.4 million, will pay Church House Trust shareholders 509.2p in cash plus 1.0294 loan notes for each share. The offer has been irrevocably accepted by directors speaking for 21 per cent of the shares plus investors speaking for another 44 per cent.

Sir Richard said: "The Church House Trust business offers us a strong platform for growth. Virgin Money aims to bring simplicity to the UK banking market which has traditionally been a complex sector."

Jayne Anne Gadhia, chief executive of Virgin Money, said: "The financial crisis has tarnished the reputation of many UK banks. Virgin Money will provide a better, different form of banking to its customers, increasing competition in the sector. We see the acquisition of Church House Trust as a strong and sensible first step in delivering Virgin Money's banking ambition.”

Following the takeover, the investment management unit of Church House Trust will be acquired by its management, led by its chief investment officer, James Mahon, and James Johnsen, head of business development, backed by Church House Trust shareholders. The Cayzer Trust will become the largest shareholder alongside individual shareholders including Michael Baines, Tim Guinness and Andrew Martin Smith.

Edmund Batten, a West Country solicitor, originally founded Batten & Co, Private Bankers, in 1792 alongside his legal practice. The bank flourished through a succession of mergers and acquisitions in the 19th and early 20th centuries, eventually merging with the Stuckey's Bank which in turn merged with Westminster Bank.

Following a period of expansion for Battens Solicitors, partners of which included and include today Edmund Batten's descendants, from 1924 to the 1980's, the then partners of Battens formed Church House Trust in 1987 to service the needs of its private clients. Since then, Church House Trust has taken retail deposits and provided general banking services, in addition to providing wealth management, pension and other financial services consulting functions.

Source: ' Times '

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