In September 2008 Lloyds Bank bought HBOS, the mess that was left from what was once Halifax Building Society.
I asked a City analyst what he thought. He replied: You know what you get when you merge ice-cream with horse-manure? Horse-manure.
That’s how I feel about Nationwide Building Society’s near £3 billion takeover of Virgin Money, a business with a brand that will disappear and otherwise a load of problems, some of which we know about, and some of which shall emerge in time.
Late last week Nationwide itself had a payments problem.
At the same time I got a fairly typical message from Virgin Money that said: “Hmm. Something’s gone wrong at our end. Please try again a bit later.”
For VM, that’s far from unusual. The merging lenders having an outage at the exact same time is just bad luck, I guess.
Nationwide customers near me reacted badly. There were queues around the corner to use the ATM at the branch on Seven Sisters Road in North London as members worried about getting their money.
I think they over-reacted, but nevertheless, it was reminiscent of when Northern Rock went bust and people queued for hours.
Virgin Money is basically the old Northern Rock, which some other bits lobbed on.
Nationwide’s plan is to operate the building society and VM separately for four years, then begin an integration that shall be pure torture for those involved (that isn’t their description of the process. Yet.)
Eventually, most VM customers become Nationwide members. In theory.
All of this looks like an unnecessary risk for Nationwide CEO Debbie Crosbie to take. When Lloyds bought HBOS, there was government encouragement to do so.
Nationwide has reported record results and benefits to members, despite a sluggish housing market.
Crosbie was under no pressure to do what she has just done. And we won’t really know whether it worked or not for years.
She makes the point that the ratings agencies – Moody’s and the like – think this is a good deal because it is acquiring assets at a low multiple of earnings.
But for them Nationwide is now just a customer to be flattered. When it came to predicting the financial crash of 2008, the ratings lot had no clue.
This could be a total disaster for Nationwide, perhaps our most important financial institution after the Bank of England. I sincerely hope I am wrong.
