Virgin Money has postponed its plans for a £2bn flotation following recent turbulent market conditions.
The northern-based lender had expected its initial public offering to take place this month, but is now saying the sale will happen “as soon as constructive market conditions allow”.
The move follows a collapse in investor confidence in the world economy, which caused the FTSE 100 Index to slump by more than nine per cent since the beginning of September. However, the FTSE rebounded from 15-month lows yesterday as concern eased over the state of the US economy.
Earlier this week UK challenger bank Aldermore ditched its £800m initial public offering and construction firm Miller also dropped plans to list its housebuilding division last week.
Aldermore said it will probably wait until after the General Election next May before it floats.
Virgin Money‘s chief executive Jayne-Anne Gadhia said: “Virgin Money continues to perform strongly and we remain focused on delivering a successful initial public offering as soon as market conditions allow.”
Analysts estimate that Virgin Money would be valued at around £2bn, potentially valuing founder Richard Branson’s stake at almost £1bn.
The lender, which provides mortgages, savings and credit cards to 2.8 million customers, said this month it plans to float at least 25 per cent of the firm to investors.
A flotation will eventually see £50m returned to the taxpayer as part of its agreement to buy Northern Rock in 2011.
The bank bought former failed lender Northern Rock from the Government for an initial £820m.
Virgin said the latest contribution as a result of the flotation would take the total paid to the Treasury to £1.02bn.
Virgin said it intends to use the £150m it plans to raise to expand the business in a number of areas, including boosting its share of the UK mortgage lending market to over three per cent, and lifting its credit card lending from £1bn to £3bn by 2018.
The lender employs more than 2,500 staff, with 1,700 based in Gosforth, Newcastle, and 200 in Norwich.
It is owned by Sir Richard Branson’s Virgin Group, Wall Street billionaire Wilbur Ross and an Abu Dhabi investment fund.
Virgin Money has 2.8 million customers and 75 branches, and made an underlying pretax profit of £59.7m in the first six months of this year.
That was up from £53.4m for all of 2013, its first profit since the Northern Rock deal.
Aldermore’s decision on Wednesday to cancel plans to float its shares on the London Stock Exchange had cast a shadow over the prospects of Virgin Money, which is bigger and better known.
“Whilst we were out on the road, basically the bottom fell out of the market,” said Aldermore’s chief executive Phillip Monks, adding that the lender still had ambitions to list.
“A number of investors turned round to us wistfully and said, ‘you couldn’t have picked a worse time to IPO’. But they loved the story.”
Aldermore and Virgin are among the so-called challenger banks which the Government hopes can break the dominance of Britain’s ‘Big Five’ of Lloyds, HSBC, Royal Bank of Scotland, Barclays and Santander UK, which together account for more than three-quarters of lending.
Aldermore had planned to sell about £300m of shares by Thursday and list the following day.
“The bank was being sold on growth at a time that we’re seeing a flight to safety. It was the wrong stock at the wrong time,” said a person close to the deal.
The prospect of an interest rate rise in the US and a deteriorating economic outlook in Germany are among the reasons for an equities sell-off that has hit newly listed stocks.