YBS buying Egg’s business

Yorkshire declined to say how much it is paying for the business. However, analysts believe the deal is likely to be worth less than £20m when it completes later this year.

YBS, which is also finalising its merger with Norwich & Peterborough Building Society, insisted the deal is a good one for its members and Egg’s customers.

Egg comes with a £2.5bn savings book and a £430m mortgage book – adding about 550,000 customers in total.

“It will strengthen even further the funding position of the group and that increases our capacity to lend,” said Yorkshire chief executive Iain Cornish.

“This makes absolute sense for us.

“The organic growth in the market is virtually nothing. If you’re not doing transactions of this type you’re probably a business which is atrophying. It keeps the forward momentum in the business and that’s a good thing for all our members.”

The deal gives Yorkshire access to a hefty slug of funding at a time when lenders are fighting to win deposits and bolster balance sheets.

Mr Cornish added the Egg mortgage book is made up of very good quality residential loans, with an average loan-to-value of only about 33 per cent.

The deal is likely to be Mr Cornish’s last as chief executive of the mutual. YBS is due to reveal his replacement imminently, after Mr Cornish announced in February that he plans to stand down after eight years.

“It’s well advanced,” he said. “We would expect to be making an announcement in the summer.”

Under his tenure Yorkshire has also snapped up snapped up Barnsley and Chelsea, and in recent months has been on a drive to boost lending to homebuyers.

Mr Cornish insisted the Egg deal is unrelated to Yorkshire’s interest in remutualising state-owned lender Northern Rock.

“This is completely unrelated to anything we might do with the Rock.

“ We see this as a deal on its own merits,” he said. “We’ve not reached any irrevocable decision (on the Rock) but I’ve never tried to portray it as anything other than a long shot.”

YBS will outsource the Egg business to Citi for a year, before taking management of the deposit and loan books in-house.

It will also acquire the Egg brand, but will not take on the company’s 600-strong workforce, which is largely based in Derby. Egg has no branches and is based solely on the phone and internet.

“We want this to be a core offering for YBS,” said Mr Cornish. “It makes sense for it to be (run by) our people here.”

He said Yorkshire has not yet decided what to do with the Egg brand, but it will probably not be developed by the mutual.

“One of the attractions for us is that Egg has built up this business over a period of time,” he said.

“It’s done it by offering good rates but also a good service proposition.

“Egg has got a pretty sophisticated technology platform and that’s something that we can learn from and offer to Yorkshire members.”

Mr Cornish added it will be “business as usual” for customers of both businesses.

The deal is not subject to approval from Yorkshire members because of its relative size, but will be sanctioned by the High Court and is expected to complete in the fourth quarter of the year.

Citi bought Egg for £575m in 2007 but the credit crunch forced it to seek a US government bail-out. It sold Egg’s credit card business to Barclays in March for an undisclosed sum.

Mr Cornish added the deal makes good financial sense for Yorkshire.

“We’ve demonstrated our ability to deliver on the financials of these deals with what we’ve done with Barnsley and Chelsea.” Citi said the deal “demonstrates Citi’s continued success in reducing the assets of Citi Holdings in an economically rational manner, while working to generate long-term profitability and growth from the core businesses within Citicorp”.

Once the deal completes, savers with both Yorkshire and Egg will only have deposits up to £85,000 covered by the Government’s deposit insurance scheme – the Financial Services Compensation Scheme.

Kevin Mountford, head of banking at moneysupermarket.com, said the deal makes “make good commercial sense” for YBS as lenders are forced to bolster their balance sheets.

“This latest purchase follows previous mergers with Barnsley, Chelsea and planned integration with N&P, which should give the society even more options and ensure they remain competitive in the savings market.”

He added: “Whilst this consolidation means we should see a stronger national presence within the savings and mortgage markets, with the industry in need of some innovative new products, the question will be how this move affects the level of competition amongst providers.”

YBS is due to report half-year results imminently.

Bank launched by prudential

Internet and phone bank Egg was launched in 1998 by life assurance company Prudential.

The Derby-based business floated on the London Stock Exchange in 2000, with Prudential retaining a majority stake. It delisted from the stock market in 2006.

Current owner Citi acquired the business from Prudential for £575m in 2007, but the credit crunch and recession meant it required a United States government bailout.

In March Citi sold Egg’s UK credit card business to Barclays for an undisclosed sum. The deal included £1.8bn of gross assets and 1.15m customer accounts.

However, Citi retained the Egg brand until its sale to Yorkshire Building Society.

Egg comes with about 550,000 customers, with roughly 90 per cent of these savings customers.

It will be Yorkshire’s fifth brand when the mutual’s deal to merge with Norwich & Peterborough completes in November.

Bradford-based Yorkshire will have 224 branches, three million customers and assets of about £34bn once the N&P deal completes, although its asset base and customer numbers will increase further with the Egg acquisition.