Virgin Money IPO: Challenger bank to float on stock market

Tim Wallace
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Virgin Money CEO Jayne-Anne Gadhia: Current account volumes have surpassed expectations
Challenger bank Virgin Money is floating on the stock market, chief executive Jayne-Anne Gadhia announced yesterday.

The sale of the 25 per cent stake in the bank is expected to value the lender at between £1.5bn and £2bn.

Major owners Virgin Financial Investments and US investment guru Wilbur Ross’ investment fund will sell down parts of their stakes, and some new shares will also be issued.

At the same time more than 2,000 staff will receive £1,000 in shares each, provided they stay at the bank for another year.

Of the funds raised, £50m will go to the Treasury under the terms of the deal to buy parts of Northern Rock back in 2012. The remainder will go into expanding the business.

It rolled out its new basic current account in Scottish and Northern Irish branches earlier this year, and will expand that to the rest of the UK in the coming months.

“Current account volumes have surpassed our expectations. It is branch only, to manage volumes, so we are getting hundreds of new customers per month rather than thousands,” Gadhia told City A.M.

“We do not plan to expand the branch network per se – we have 75 branches in the right cities now – but the Virgin Money Lounges are working well. They are right for the brand, and we have budgeted for an additional two lounges per year.”

Virgin Money plans to raise at least £150m in the initial public offering (IPO), but once investors have been consulted analysts expect the 25 per cent stake to sell for closer to £500m.

The share issuance will be a test of investors’ ability to absorb the flood of companies coming to the market this year – and as several high-profile stocks have slumped after flotations, some institutions are increasingly cautious on price.

“They have to be very careful,” one fund manager said. “Risk appetite is rock bottom for new deals.”

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