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MARKETS SPECTATOR: Storming the four-tress

Bank of Queensland reckons Virgin Money can attract the young - and old - who are disillusioned with financial products offered by competitors.
By · 10 Apr 2013
By ·
10 Apr 2013
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Many have tired to make hay by cashing in on perceptions the public are sick of Australia’s four largest banks. Very few have made money. Bank of Queensland is the latest to try. 

The Brisbane-based lender is paying $40 million for the loss making Virgin Money Australia. Virgin Money is an internet-based business that offers credit cards, savings accounts, life and general insurance as well as superannuation funds.

Stuart Grimshaw, BOQ’s chief executive, says the acquisition will dilute earnings per share by about 2 per cent in the 2014 financial year. He’s confident Virgin Money will become “EPS positive” during the bank’s second year of ownership. How much by, Grimshaw doesn't answer.

For the last three years Virgin Money in Australia has grown its customer base more than 20 per cent per annum. It now has about 150,000 customers. Strangely Virgin Money does not have an 'app'. Grimshaw vows to change that. He admits Bank of Queensland has “not invested sufficiently” in social media and internet platforms that could attract more customers.

Sixty per cent of Virgin Money’s Australian customers are 25 to 44 years old compared with 33 per cent of Bank of Queensland's. David Baxby, co-chief executive of the Virgin Group, reckons the 'growing old disgracefully' population also wants cheap, effective, transparent wealth products. Like the hipsters, those with grey or no hair can “rip apart” the plethora of financial product offerings, he says.

The majority of Virgin Money’s customers have the company’s credit cards. Virgin Money’s partnership with Virgin's airlines enables it to offer two free flights a year to customers. That kind of enticing deal to attract new customers to Virgin Money may be few and far between for Bank of Queensland beyond linking in with Richard Branson’s Virgin Group.

Baxby’s belief that the public has become disillusioned in finance after the global financial crisis may be overblown. Public cynicism toward Wall Street may have been reinforced but its eagerness to make money has not dissipated. It’s hard to see many new customers for Virgin Money’s superannuation product that offers index-linked products. It has only attracted about $450 million from the public to date. Grimshaw says he may set up Virgin Money kiosks to attract customers. Baxby reckons bricks and mortar branches are going the way of the dodo.  

Although it’s a modest enough price as acquisitions go, the risks for Bank of Queensland are not insignificant. If the bank does not provide the service and product through Virgin Money, the company’s reputation not only in Queensland, where 60 per cent of its customers reside, but also nationally will be severely damaged.

At 2:36pm AEST Bank of Queensland shares had fallen 7 cents to $9.59.

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Brett Cole
Brett Cole
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