Virgin Money and CYBG strike £1.7bn deal putting 1,500 jobs at risk

Clydesdale Bank owner sweetened its offer for rival challenger earlier this month

The new combined group will operate under the Virgin Money brand (Reuters)

Virgin Money has accepted CYBG’s £1.7bn takeover offer, which the challengers say will create a bank to rival the UK’s four biggest high street lenders, but will also lead to job losses.

The banks first announced they were in talks about a potential deal in May, with the initial deal worth £1.6bn. However, earlier this month, Clydesdale Bank owner CYBG sweetened its offer.

Together, the firms currently serve around 6 million customers. If the deal goes ahead, the groups said the new lender will have “the scale, capabilities and financial muscle to disrupt the status quo”. However, the groups confirmed there would be a loss of around 1,500 jobs due to the combination.

Under the terms of the deal, the bank will operate under the Virgin Money brand, with CYBG agreeing to pay more than £15m per year to use the name.

CYBG chief executive David Duffy will carry on in the leadership role, while Virgin Money’s CEO Jayne-Anne Gadhia has “agreed, in principle, to support the combined group as a senior adviser to the CEO”, in a consultancy role, the firms said.

Mr Duffy said the deal would “create the first true national competitor to the status quo in UK banking”.

“By combining two of the UK’s leading challenger banks, we will create a national, full-service bank with the capabilities needed to compete effectively with the large incumbent banks,” he added.

“We are bringing together CYBG’s 175-year heritage in serving retail and SME customers and advanced digital technology, with the iconic Virgin Money brand and consumer champion credentials.”

Ms Gadhia said: “The combination of Virgin Money with CYBG will have greater scale to challenge the big banks. It will also accelerate the delivery of our strategic objectives, particularly the expansion of the products we offer to customers.

“This is a compelling deal for our shareholders, that accelerates value delivery and represents the beginning of the next chapter of the Virgin Money story.”

Michael Hewson, chief market analyst at CMC Markets UK, said: “On their own both banks are likely to struggle for market share while together they are a decent fit, and will probably be more durable in terms of competing on the same playing field.”

Shares in both groups edged up in early trading.