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Virgin Money makes first steps to rival Britain’s retail banks with Church House Trust acquisition

Richard Branson’s financial services business, Virgin Money, announced the proposed £12.28 million acquisition of UK based private bank, the Church House Trust. The acquisition marks the group’s entrance into the retail banking industry; it will subsequently allow Virgin Money to offer customers current accounts and other banking services in addition to its credit card, savings and investment businesses.

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

The deal sees Virgin Money join the Lloyds Banking Group (LSE: LLOY), Royal Bank of Scotland (LSE: RBS), Barclays (LSE: BARC), HSBC (LSE: HSBC) and Banco Santander (LSE: BNC) in the UK banking sector. Britain’s banking industry has increasingly been criticised for its lack of competition following a series of consolidations amid the fall-out of the financial crisis.

"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”, commented Anne Gadhia, Virgin Money chief executive, “Our approach to banking is founded on developing a sustainable, savings-based business. We see the acquisition of Church House Trust as a strong and sensible first step in delivering Virgin Money's banking ambition".

Under the terms of the proposal Virgin Money will offer the private bank’s shareholders 509.2 pence in cash and  1.0294 Contingent Loan Notes for each Church House Trust share. Virgin Money has already received irrevocable undertakings in favour of the offer in respect of 1,092,889 Church House Trust shares representing approximately 65.8% of the company’s issued share capital.

Virgin Money's application to become the controlling shareholder of a bank has already been approved by the Financial Services Authority. Following the acquisition, the company will be well capitalised with an initial Tier 1 ratio in excess of 35%, Virgin will also inject £37.3 million of new capital into the banking business.

Disclosure: The author does not hold positions in the company