UK Markets closed

Market report: CYBG-Virgin deal wins the City over

Tom Rees
CYBG and Virgin Money’s £1.7bn all-share tie-up is the latest in a wave of challenger bank consolidation deals amid climbing costs and fierce competition

Challenger bank CYBG topped a sinking London market after its merger with Virgin Money won the blessing of City analysts who declared that it will finally create a “national competitor” to break the big four lenders’ stranglehold.

CYBG and Virgin Money’s £1.7bn all-share tie-up is the latest in a wave of challenger bank consolidation deals amid climbing costs and fierce competition.

Rather than two drunks propping each other up at a bar, Panmure Gordon argued in an upgrade to “buy” that the cost savings will “significantly improve profitability”, adding that the “full product range” offered by the combined entity will make it a “national competitor” to its larger rivals.

Wall Street bank JP Morgan also backed CYBG boss Debbie Crosbie’s claim that a merger will create a “proper” challenge to the big four. It added that Virgin Money’s mortgage and credit card customers would complement CYBG’s specialism in current accounts and small business banking.

City analysts piling in to lend their weight to the sector’s latest consolidation deal boosted CYBG 11.6p to 318.2p and lifted Virgin Money 8.5p to 365p.

Elsewhere, crude giants BP and Royal Dutch Shell “B” weighed heavily on the FTSE 100 as the oil market braced for what is expected to be the most fractious Opec meeting in years. Ahead of the meeting in Vienna tomorrow, reports have emerged suggesting that production hikes of up to 1.8m barrels a day may be under discussion. But analysts expect that a more politically palatable production hike would be far lower.

Extending a losing streak to a third day, Brent crude fluctuated, sinking as much as 2.4pc to below $73 per barrel, a seven-week low, before recovering to $73.50. BP slipped back 4.9p to 559.5p while Shell dropped 28p to £26.17.

Pharma giant Shire climbed 78p to £40.88 after the US Food and Drug Administration approved a medicine that treats a condition that causes life-threatening swelling in children. As it prepares to be snapped up by a Japanese rival, UBS provided an extra lift by backing what should be an “appealing” deal for investors.

The AA tumbled 5.9p to 133.6p after large shareholders Deutsche Bank and Liontrust both trimmed their stakes in the troubled roadside rescue firm.

An upgrade to “buy” from HSBC mitigated mining heavyweight Rio Tinto’s 19p fall to £41.03 while another twist in the boardroom battle at Russian miner Petropavlovsk knocked it 0.5p to 7.9p. Top shareholder Fincraft urged fellow investors to topple the current board at an AGM next Friday.

A bright start to European trading quickly turned sour after German carmaker Daimler became the first corporate heavyweight to cut its profit guidance on fears of a trade war.

Flaring trade tensions knocked Germany’s DAX index 1.4pc before jitters spread to London’s blue-chips, with the FTSE 100 shedding 70.96 points to 7,556.44.