Virgin Money: Wider Implications Relatively Limited

Virgin Money cash offer (VMUK LN) wider implications are relatively limited:

• The major UK banks are likely to struggle to get any further in-market deals through competition scrutiny, especially those with state holdings (NatWest and Lloyds).
• Barclays (0.5x), NatWest (0.8x) and Lloyds (0.9x) are trading at meaningful discounts to tangible book value which tells you a lot about their paper as an acquisition currency. It also means the bar set by a buyback for equity holders is very high to justify a deal against.
• There is a limited tail of “deals worth doing” in the UK – Coventry, Yorkshire and Skipton building societies are the next three down the list (the Co-Op bank has its own problems). However, there are much less consolidated markets than the UK: Italy being a key one. Will this trigger further deals? Industrial logic might be there, but financial and political considerations remain significant barriers, we fear.