Christmas has come early for British lender Nationwide Building Society, which revealed on Wednesday it has booked a bigger-than-forecast accounting gain from its purchase of rival Virgin Money two months ago.
Virgin, you probably remember, was led into the tie-up by former AIB chief executive David Duffy.
“The standout feature of the Nationwide update was the enormous £2.3 billion (€2.75 billion) gain on the acquisition,” said John Cronin, a banking analyst and author of a newsletter called Financials Unshackled. “This is much higher than had been expected when the deal was first announced.”
Indeed it is. Nationwide had previously estimated that the accounting gain – known as negative goodwill, or badwill – resulting from acquiring Virgin at a discount to its fair value would amount to £1.5 billion.
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Badwill – which, contrary to how it sounds, is a good thing if you’re a buyer – has been a regular feature of bank deals in recent years, given how shares across sector have consistently traded at a discount to their book value. Book value is the value a company puts on its assets if it were liquidated.
Take PTSB. It booked a €362 million merger and acquisition (M&A) accounting windfall in 2023 when it took over much of Ulster Bank’s loan book as the UK-owned bank hastened a retreat from the market. This helped PTSB avoid having to go cap in hand to shareholders – led by the Government – to raise equity to complete the purchase.
On the other end of the spectrum, Swiss banking giant UBS generated an eye-watering $29 billion (€27.4 billion) last year snapping up its troubled rival Credit Suisse at a deep discount in a deal orchestrated by Swiss authorities.
Back in the UK, while Virgin shareholders ended up selling out at discount to book value, the takeover bid in March was still priced at a 38 per cent premium to Virgin Money’s “undisturbed price” before the tie-up talks were disclosed.
Duffy, who stepped down as chief executive as the tie-up was completed at the end of September, is estimated to have secured a pay-day worth as much as £15.3 million (€18.3 million) through the sale of shares he held in the bank.
That included shares stemming from unvested stock awards that stood to be converted as part of the deal for executives in good standing. A goodwill gesture, if you will.
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