Virgin Money has agreed a takeover deal by CBYC,the owner of Clydesdale Bank and Yorkshire Bank.
The £1.7 billion deal will see the creation of the UK’s sixth-largest bank.
CYBG (LON:CYBG) said it had agreed with Virgin Group to license the Virgin Money brand for £12 million annually, subsequently rising to £15 million.
Sir Richard Branson’s Virgin Group is currently Virgin Money’s biggest shareholder, with a 34.8 per cent stake.
It is expected that 1,500 jobs will be shed as a result of the takeover.
The banks expect to make £120 million of annual savings by by 2021 by reducing overlap between their operations.
CYBG commented that the deal would “bring together the complementary strengths of two successful challenger banks to create the UK’s first true national competitor to the large incumbent banks”.
Chief executive, David Duffy, said in comments to the BBC’s Today programme: “We’re going to become a competitor of scale.”
He also emphasised that “technology and agility” were the key forces that would dictate the future of the banking industry.
“I think we have sufficient scale – the brands, the product and the technology,” he said.
“We can be agile enough to deliver a much better deal for the customer.”
Current CYBG chairman Jim Pettigrew, chief executive David Duffy and finance chief officer Ian Smith are set to stay onboard in their respective roles.
Virgin Money’s chief executive, Jayne-Anne Gadhia, would not leave completely, and she has “agreed in principle” to serve in a senior advisory consultancy role to Mr Duffy.
Commenting on the deal, She said: “The combination of Virgin Money with CYBG will have greater scale to challenge the big banks.
“It will also accelerate the delivery of our strategic objectives, particularly the expansion of the products we offer to
customers.”
She continued: “I am especially pleased that we have received a number of important commitments from CYBG.
“We have obtained assurances from CYBG regarding our employees (including a commitment to leverage the best talent from both CYBG and Virgin Money) and our Gosforth headquarters.
“The combined group will remain a committed voice behind the Women in Finance Charter as well as working to reduce the gender pay gap.
Shares in CYBG are currently trading -0.91 percent as of 11.25AM (GMT).