Britain's Nationwide books surprisingly big $3 billion gain on Virgin Money deal
Nationwide gains more than previously thought from Virgin deal
Profit slides as lender boosts payouts to members
Nationwide taking slow approach to Virgin Money integration
Writes through with analyst reaction, quotes from CEO and CFO
By Lawrence White
LONDON, Nov 27 (Reuters) -Nationwide Building Society said on Wednesday it would realise a bigger-than-expected gain of 2.3 billion pounds ($2.9 billion)from its acquisition of rival Virgin Money, although it reported a sharp drop in profits for the first half of the year.
Statutory profit before tax tumbled 43% to 568 million pounds in the six months to Sept. 30 as falling interest rates ate into margins while it increased payouts to its members.
"The standout feature of the update was the enormous £2.3bn gain on the acquisition of Virgin Money UK reported by Nationwide this morning," said John Cronin, a financials industry analyst at SeaPoint Insights.
"This is much higher than had been expected when the deal was first announced and reflects positive fair value adjustments at acquisition as well as some tangible equity build at Virgin Money UK," he said.
Nationwide had previously given guidance that the gain could be as much as 1.5 billion pounds.
The deal, concluded in October, has helped cash-rich Nationwide bolster its potential to earn from business banking and credit cards, and made it Britain's second-largest lender in terms of mortgages and retail deposits with total assets of more than 370 billion pounds.
Nationwide says it will take 18 months to study Virgin Money's business and books before making any big changes.
"We've always said we'll take a slow and measured approach to this integration," Nationwide CEO Debbie Crosbie told Reuters.
"There are no huge synergies from this deal, it is about the commercial market shares that we want to maintain and achieve, and it is a real diversification play," she said.
The lender, unlike the big shareholder-owned banks it competes with, does not prioritise profit but instead measures how much it pays out to its members.
That reached a record 1.3 billion pounds in the first half, thanks to 950 million pounds in member benefits from better than market rate pricing and incentives, as well as a 385 million pound payout to customers.
The lender's capital ratio increased despite the drop in profit and those payouts, Chief Financial Officer Muir Mathieson told Reuters.
"Maximisation of profits is not the right answer for Nationwide, our purpose is to give as much value as we sustainably can back to our members," he said.
($1 = 0.7948 pounds)
Reporting by Lawrence White; Editing by Tommy Reggiori Wilkes and Edwina Gibbs
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