The U.K. bank Nationwide Building Society is set to acquire Virgin Money for $2.7 billion.
The boards of the two companies reached a preliminary agreement to the deal on Thursday (March 7), saying their merger would make them Great Britain’s second-largest provider of mortgages and savings.
“The combination of our businesses would put us in a stronger position to continue to provide Fairer Share Payments to our eligible Nationwide members, better value mortgages and savings, and leading customer service,” Nationwide Chairman Kevin Parry wrote in a letter to members ahead of the deal.
“Over time, we would aim to provide a wider range of products and services to our customers and members, including Virgin Money’s well-established business banking services. A combined group would deliver the benefits of fairer banking and mutual ownership to more people in the UK,” Parry wrote.
Among the other benefits of the deal, Nationwide said, is the ability for Nationwide to increase its scale in the lending and deposit space. Virgin Money is England’s sixth largest retail bank in terms of assets, with roughly 6.6 million customers and total lending of $93.1 billion.
Virgin Money also has 8.4% of the U.K. credit card market, as well as $11.5 billion in business lending balances.
A report by the Financial Times noted that the deal marks a rare example of a mutual like Nationwide acquiring a public company.
That report also included a comment from Benjamin Toms, an analyst at RBC Capital Markets, who said the transaction could “lead to increased competition in the UK mortgage and savings market” and raise Nationwide’s share of the mortgage market from 12.2% to 15.7%
The deal is happening at a time when — per PYMNTS Intelligence research — many consumers are looking beyond their traditional financial institutions (FIs) for mortgages.
The study “Credit Union Innovation: How Credit Product Rates Impact FI Selection” found that while 75% of account holders said their primary FIs commonly provide major credit products, like mortgages and auto loans, consumers are inclined to look for competitive interest rates and payment conditions for these specific loans.
“Notably, 48% of mortgages and 41% of auto loans are sourced from banks or CUs distinct from consumers’ main FIs, suggesting that consumers actively seek better terms elsewhere, aiming to enhance credit affordability and save money by exploring alternate providers,” PYMNTS wrote in January.