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Virgin Money revives £2bn flotation plan

Virgin Money has today revived its plan to float on the London Stock Exchange, confirming my blogs last night and earlier today.

The Edinburgh and Newcastle based bank, which acquired the collapsed Northern Rock branch network from the government, said in a statement that it now expects the £2 billion initial public offering (IPO) to go ahead before the end of this month as predicted here earlier this morning.

It had planned an initial public offering (IPO) last month but chose to delay because of volatile market conditions.

The listing of 25% of Virgin Money’s shares was expected to value Sir Richard Branson’s bank at about £2 billion and it was not clear last night if it will aim for a similar market capitalisation or lower the price to ensure a successful issue. Its initial plan was to raise £150 million for expansion and to pay off £50 million owed to the government in relation to the £1.02 billion acquisition of Northern Rock.

All 2,800 staff are promised £1,000 in free shares in time for Christmas. Jayne-Anne Gadhia, chief executive, said: “Our business performance remains strong and on Friday we published our Q3trading update which demonstrates our continued growth momentum.

“We welcome the clarity provided by the Financial Policy Committee on the leverage ratio, and are pleased to note that we operate in excess of the recommended requirements.

“Given this and given more stable market conditions, we now plan to move forward with our IPO with the aim of being admitted by the end of November.  Access to the public capital markets has been a long-term strategic objective for Virgin Money and we are now ready to take this important step forward for our business.”

Virgin’s delayed flotation coincided with weakness in the European economies and troubles in the Middle East and Ukraine, causing the appetite for new issues to all but dry up. Aldermore Bank pulled its £800 million flotation that was also due to take place last month. No new date has been announced. Miller Homes has also delayed its planned listing.

The revived Virgin plan comes at a time when Clydesdale Bank and Tesco Bank may be lining up flotations, once again putting pressure on investors.

Floating Clydesdale is seen as a route out of the UK for its parent National Australia Bank which wants to focus on its operations close to home. Tesco Bank, now operating a more or less full service banking operation following the launch of its current account, is perhaps the more likely to come to market. The Tesco board needs to strengthen the company’s balance sheet and shareholders may be concerned at the need for it to hold billions of pounds in reserves for the bank to meet the demands of the regulators.

Virgin Money is at least in good shape and when it unveiled its IPO on 2 October the firm said that its strong capital position and franchise would allow it to adopt a “progressive dividend policy”. It said it intends to pay a dividend in its first full financial year following admission. Over the last three years it has transformed the business by expanding the  product range, increasing customer numbers, growing the balance sheet and enhancing profitability.

In the first half of 2014 Virgin reported an underlying profit of £59.7m, against £53.4m for the whole of 2013.

Last Friday, in third quarter figures it said it had increased lending in the mortgage market and hopes to have its in-house credit card available by the end of the year.

It estimates that it took a 4.5% market share of new mortgage applications in the quarter and increased retail deposit balances by over 3% to £21.8 billion.

The company increased gross mortgage lending during the three months to the end of September with mortgage completions 19% higher than the average of the first two quarters. The mortgage book increased by 3% to £20.9 billion at the end of the quarter.

Credit card balances during the quarter remained slightly ahead of expectation, ending the period at around £1 billion. More than £700 million of the credit card balances are held on Virgin’s balance sheet and £300 million by credit card partner MBNA pending transfer to Virgin on 30 November.

Virgin has 2.8 million customers, 75 stores and five customer lounges. Since acquiring Northern Rock it has created 450 jobs.

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