LONDON (Alliance News) - Moody's Investors Service on Thursday placed the Baa2 baseline credit assessment rating of Virgin Money Holdings PLC and Clydesdale Bank PLC on review for upgrade.
The review follows the announcement of the potential combination of Virgin Money with Clydesdale Bank owner CYBG PLC. On Monday, Virgin Money agreed to an all-share takeover worth GBP1.7 billion from CYBG, which also owns Yorkshire Bank.
The offer will leave Virgin Money shareholders with 38% of the enlarged bank, and will create a scalable "challenger bank" in the UK with around six million customers, and a GBP69.5 billion customer loan book, CYBG has said.
The credit rating review will focus on the combined entity's ability to deliver sustained profitability, Moody's said. Both banks' baseline credit assessment ratings could be upgraded if Moody's concluded that new entity is likely to demonstrate a sustainable improvement in profitability and efficiency.
Moody's said it believes that proposed takeover provides both companies with the substantial possibility for cost savings and new revenue opportunities. Moody's also expects that the combined entity will retain a strong capital position and stable funding profile.
CYBG expects the combined entity to generate GBP120 million of annual pretax cost synergies by late 2021. This would be achieved through staff reduction, rationalization of central functions, and optimization of the branch network.
In addition, Moody's said that a combined entity would be better positioned to mitigate an expected sector-wide increase in funding costs following the end of the Bank of England's Term Funding Scheme in February.
Shares in CYBG were up 2.2% at 313.20 pence per share on Thursday while Virgin Money shares were trading 1.2% higher at 360.90p each.
