Virgin Money hires adviser for bank acquisition

By Lawrie Holmes and Ben Harrington


Published: 9:57PM GMT 02 Jan 2010

A source close to the situation said the company has hired specialist advisor
Quayle Munro, which is headed by Peter Norris – a former Barings boss and
current chairman of Virgin Money.

Aldermore Bank, formerly called Ruffler Bank, owned by private equity firm
AnaCap, is thought to head a list of targets being looked at by Quayle
Munro.

The hiring of the firm kicks off Virgin's bid to become a leading financial
services operator in the UK.

It will move to gain a banking licence in the next couple of weeks before
setting up an online banking operation.

The source said that once Virgin had acquired a licence in the first half of
January, it would "around the same time seek to do an acquisition"
of a small bank, which would be expected to take three to four weeks to
complete.

The acquisition would be used to spearhead the rapid growth of an online
operation. "They are looking at an operation that would give it a
kick-start," said the source.

Virgin is expected to spend around £50m acquiring the bank and injecting
capital to meet regulatory requirements, which it will draw from Virgin
Money's cash reserves.

The group, led by Jayne Anne Gadhia, is understood to be in line to deliver
full-year earnings before interest and tax of around £40m to £50m, compared
to £35m last time.

At some point this year the entity is expected to change its name to Virgin
Bank before embarking on a larger acquisition programme, targeting assets of
Royal Bank of Scotland, Lloyds Banking Group and Northern Rock. The source
said that this would only take place in the latter half of 2010, when it was
clearer what assets would be available and following the general election.

The "good" part of Northern Rock is likely to be put on the block as
early as May, after its restructuring is completed in the next few months.

Virgin would seek to acquire assets in partnership with private equity firms,
in a similar vein to the manner in which it attempted to buy Northern Rock
through an initial £1.3bn investment in 2008. The approach, made with a
consortium including US buy-out specialist Wilbur Ross, hedge fund Toscafund
and Hong Kong-based investment firm First Eastern, failed due to concerns
about the consortium's ability to raise capital. The consortium said at the
time that it would raise half the capital through an offer to existing Rock
shareholders, an approach it may try again.

Virgin originally applied for a banking licence from the Financial Services
Authority (FSA) in October. It is thought to be one of several groups
looking to build a presence in the UK banking sector this year, capitalising
on customer distrust of large high street banks. The group is also thought
to include Metro Bank – a start-up from US entrepreneur Vernon Hill which
has plans to open 200 branches – as well as a venture backed by Panmure.

Recent reports suggest up to 30 organisations have recently applied for a UK
banking licence. However, the FSA is only thought to be looking at two or
three credible applications.

Virgin declined to comment on the issue.

Merchant bank Quayle Munro was founded in 1983 and subsequently listed in
London in 1993.

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