The rumbles in the financial jungle

With Nationwide and Virgin Money cleared for merger, despite member grumbles, how did the UK financial services get so messy?

Hello Rainmakers,

One of the advantages of our editorial team having been around a while, is we can provide some helpful context and background.

This week’s first Rainmakers post sees Michael Ribbeck take us on a tour of the UK financial services sector, and the wave of mergers and acquisitions that created the modern banking landscape.

It was meant to usher in an era of better choice and more competition for consumers. But did it?

All of it underpins the current merger between Virgin Money and Nationwide, which gives the largest existing building society a foothold in the business banking world too.

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THE RUMBLES IN THE FINANCIAL JUNGLE

BY MICHAEL RIBBECK

Last week a deal which will see a fundamental shift in the UK’s mortgage market was approved by the market authorities.

But the fact that the Nationwide is set to become one of the biggest lenders to homeowners across the country has thrown up a whole series of questions around the way our financial institutions are structured and operate.

It is now a matter of if rather than when the Swindon-headquartered institution will acquire Virgin Money for a total sum just short of £3bn.

The deal will be the largest UK bank merger since the financial crisis of 2008 and it will make the Nationwide the second-biggest provider of mortgages and savings accounts in the country.

And just as importantly it will give the Swindon lender a foothold in the lucrative business banking sector.

But there has been more than a whiff of controversy surrounding the deal which is expected to be one of the biggest seen in the financial sector this year.

Nationwide has grown into the largest building society in the world, but its true roots lie in the Cooperative movement of the 19^th century.

It also resisted all the efforts of activist shareholders and so-called ‘carpet baggers’ throughout the 1980s, who opened accounts in traditional building societies in order to pocket a takeover dividend when the society was swallowed up by a bank.

Nearly all of the large building societies demutualised to become non-mutual, shareholder-owned, ‘mortgage banks’.  First to go was Abbey National in 1989, followed soon after by Cheltenham & Gloucester in 1995; Halifax, by far the largest, in 1997; and Bradford and Bingley in 2000.

Yet the Nationwide is itself a union of a large number of societies having merged initially with the Anglia Building Society to form Nationwide-Anglia in 1987, but it has also absorbed smaller and often troubled societies (Cheshire, Derby and Dunfermline).

An advertising campaign currently running on our TV screens reflects the fact that the building society likes to hold itself to higher standards than the rest of the industry.

In the adverts actor Dominic West portrays a smug self-satisfied chancer who is supposed to represent everything that is bad about bankers.

There was some irony in the fact that one of the adverts fell foul of the of Advertising Standards Authority.