Correspondence between PRA authorised firms, like Nationwide and Virgin Money, is in most case confidential. However through analysis of public documents that stipulate the obligations on authorised firms, it’s possible to glean what disclosures are required in certain circumstances, even if we don’t necessarily know the contents.
For example, in the situation where a building society (e.g. Nationwide) is planning to diversify it’s business model (e.g. acquire Virgin Money to enter the business banking market), Section 6 of Supervisory Statement | SS20/15 – Supervising building societies’ treasury and lending activities
(January 2021) specifies what is expected (see below).
If Nationwide has had to make pre-notification requirements along these lines, the board should have a good understanding of what the impact of the acquisition of Virgin Money will be – includes risks as well as the benefits, and projections of it’s financial statements of the proposed “combined group”.
This then raises some interesting questions for the campaign and its supporters:
- Why is Nationwide therefore only sharing headline benefits with members?
- What is the updated position with regards to capital adequacy (ICAAP)?
- Is the PRA satisfied that the Nationwide is complying with Section 92A of the Building Societies Act (1986)?
6. Business model diversification
Pre-notification of business model diversification
Section 6 of Supervisory Statement | SS20/15 – Supervising building societies’ treasury and lending activities, Prudential Regulatory Authority, 2021
6.1 Any society which proposes to embark on any diversification into an area (whether regulated or
unregulated, associated with the retail housing market or otherwise):
(a) which is not covered by the tables in the appendices; and
(b) where the investment (of any type) required to set it up exceeds 5% of own funds, or the
projected post implementation income within any of the three years following the diversification
exceeds 10% of projected net interest margin plus other income net of commission paid for that
year;
(c) is expected to pre-notify the PRA and provide a copy of the board paper setting out the risks and
benefits of the proposed diversification.
6.2 In particular, this paper is expected to include:
(a) central case projections of balance sheet, profit and loss (P&L), capital and liquidity before and
after the diversification;
(b) the outcome of severe but plausible stress tests of those projections, based on relevant
scenarios;
(c) a clear analysis of the risks arising from the diversification and how these are to be mitigated;
and
(d) an analysis of potential exit costs, should the diversification prove to be unsuccessful.
6.3 In some cases, particularly where the proposed diversification is to be by acquisition, a revised
ICAAP will need to be approved by the board and submitted for supervisory review and evaluation
before proceeding. This is in order that appropriate individual capital guidance can be given for the
revised business plan.
6.4 Societies should also note and comply with the provisions of section 92A of the 1986 Act in
relation to acquisition or establishment of a business.