Virgin Money: Red leader

After scooping a prize at The Lawyer Awards for the rescue of Northern Rock, the merged Virgin Money in-housers are now on a mission to rewrite the banking best-practice rulebook

If you’re not keen on red, you’re going to be in a world of trouble at Virgin Money. The upstart bank’s refurbished headquarters in Newcastle is festooned in the colour. Red is everywhere – from the moment a visitor’s name is splashed across a giant LCD screen in reception, to a stroll down the offices’ “high street” adorned with models of Virgin Atlantic jets, to a Google-esque breakout room where employees relax with pool tables and the latest arcade games. 

And there is no exception for the in-house lawyers. The walls, lights and office furniture in the open-plan legal department are splashed with the same bright red that has become the trademark of the airline’s TV and cinema advertising campaigns. 

Virgin Money
Stephen Pearson and Katie Marshall

There is no avoiding it. But neither the lawyers nor anyone else at Virgin Money’s Newcastle HQ seem to be complaining. Because, even if one of them had a deep-seated phobia towards the colour, being surrounded by red is considered a far better bet than slaving away at previously nationalised Northern Rock. 

Two years ago the 19-year-old financial services arm of Richard Branson’s 400-company business conglomerate scooped the Newcastle-based institution from state ownership. In so doing it attempted to draw a line under what was one of the highest-profile disasters of the financial crisis, when a 1930s-style bank run on Northern Rock nearly triggered an even greater UK economic disaster. 

The legal department played a crucial role in the deal, so much so that the transaction formed the backbone to the lawyers bagging the In-House Banking & Financial Services Team of the Year prize at last year’s The Lawyer Awards. But it was by no means the only justification. 

Assets and match

The awards judges pointed out that since the Northern Rock deal merged the two legal departments in summer 2012, the relatively small team of some 20 lawyers has juggled a range of projects. Headlining the list were two mortgage-backed securitisations, with the first oversubscribed at £950m, and the second raising some £1bn. 

In November 2012 Virgin Money acquired a £465m mortgage portfolio from UK Asset Resolution, with the legal team advising the business on how best to enable the seamless transfer of customers. And at the beginning of last year the bank announced its intention to bag a £1bn credit card portfolio from Bank of America’s MBNA. 

And there is more to come. It is no secret in the City that Virgin Money is considering a stock market flotation in the relatively near future, with the legal team’s corporate lawyers expected to take a front and centre position on any IPO. 

But there is no avoiding the monumental importance of the Northern Rock deal. Ever since its creation in 1965, first as a building society and then from 1997 as a bank, the institution was one of the most prominent business fixtures in North East England. Its demise was a psychological as well as an economic trauma for the region. 

Which is why the Virgin Money legal team takes so much pleasure in claiming the role it did in saving the business for Newcastle. At the city’s heart is football, so it was symbolic that the combined legal team’s first post-purchase job was to renegotiate the Magpies’ shirt sponsorship contract. 

“We had three days to convert the deal from Northern Rock to Virgin Money in time for a match with Manchester United,” recalls general counsel Stephen Pearson. “We did it. We got the Logos on the shirts and [Newcastle] won the game.” 

Since then, the club has, some might suggest, gone to the more downmarket end of the financial services sector, cutting a sponsorship deal with pay-day lender Wonga. Virgin Money has discreetly dropped out of the football sponsorship game. 

Auction stations

But that original shirt sponsorship deal was the icing on a complicated cake involving the purchase of Northern Rock, with the recipe being formulated during the takeover bid in summer 2011. 

Virgin Marshall

Katie Marshall – now Virgin Money’s company secretary, but at the time part of the Northern Rock legal team – explains the emotions behind the auction process. 

“We were aware that Virgin Money was interested in Northern Rock for some time before we were nationalised,” she recalls. Indeed, Branson’s bank made an initial failed bid in 2008. “People were disappointed they hadn’t picked us up at that point. When we got to the stage of reaching exclusivity with Virgin [in 2012] there was a narrow window for exchange. So the final deal was a relief. There was the excitement of a major brand being involved and the commitment to the region in acquiring the Gosforth building.” 

It is not easy to imagine a scenario in which a Tory Chancellor is feted in a northern England conurbation, yet Pearson maintains that when TV stations broadcast George Osborne stood on the steps of number 11 to announce the sale of Northern Rock to Virgin Money “there was a large cheer round the whole Newcastle building”. 

“The problem Northern Rock faced was that if it had been bought by a larger bank based somewhere else, in all likelihood the operation in the North East would have been run down,” Pearson continues. “The fact that there was a promise with the sale to invest in the region, along with a three-year no-redundancy guarantee, meant people said ‘thank goodness for that – this is the end of a nightmare and the beginning of a good news story’.” 

From the legal department’s point of view the main pressure point in getting to the end of that rainbow involved Virgin Money having to demonstrate to the Government that its bid represented the best possible value for tax payers.

“Nobody wanted a transaction that was going to be subject to a negative review afterwards,” confirms Pearson. 

Before sale, the Government had split Northern Rock into ‘good’ and ‘bad’ banks. It was selling the good side, and a crucial legal and strategic issue for the Virgin Money team was to ensure that side of the bank was as clean as the Government maintained.

“Negotiating the warranties and indemnities was interesting because it was an unusual angle to the deal,” comments Pearson.

In the end Virgin Money completed the purchase for slightly less than £1bn – and predictably there were headlines suggesting the bank was, well, laughing all the way to the bank with a bargain. However, Pearson claims the sale price was viewed in the industry as “fair value”, and points out that the National Audit Office subsequently reviewed and cleared the deal. 

Local links

Pearson has also had to oversee the post-sale merging of law firm panels. Marshall points to one happy coincidence – Northern Rock historically instructed local Newcastle firm Dickinson Dees, while Virgin used Bond Pearce. The merger of those two firms has blended nicely with Virgin’s new operations. Other firms inherited from Northern Rock include Ward Hadaway, among smaller local practices. But it is the relationship with Bond Dickinson that seems especially tight in Newcastle (see Honeymoons and Secondments, below).

More widely, Virgin Money’s general panel is based on that serving parent Virgin Group. It is an arrangement that provides “real benefits”, according to Pearson.

“Virgin is able to leverage off the combined companies, which is sizeable now,” she says. “So they’re able to get good panel terms with the firms.” 

But Pearson points out that the bank side of Virgin is not tied exclusively to the group panel.

“We have our own firms in addition because it’s important that we have firms in Newcastle and Edinburgh, where we have two major offices,” she adds.

North of the border, Virgin Money instructs Brodies, Dundas & Wilson (soon to become part of CMS) and Morton Fraser on a range of work including consumer credit, commercial contracts and some corporate. 

In addition to A&O, the main firms to get the Virgin Money nod in London are Baker & McKenzie, Dentons and Clifford Chance, with the last being a former Northern Rock firm. 

Because Virgin Money is still a relatively new player on the banking scene, relationship building with external counsel is vital.

“We’re still growing,” admits Pearson, “so we can’t promise X amount of work. We don’t know where we’ll be in five years, so we’re saying to law firms – make an unofficial investment of time in us. 

“There’s an element of trust. If they stand by us, we’ll stand by them in due course. Who knows what will have happened in five years, but I hope we’ll be a major player in UK banking and there will be instructions to be given out to a range of firms as a result.” 

The good guys

The Virgin legal team supremos also claim to apply a non-traditional and enlightened approach to dealings with banking regulators. At a time when the inheritors of PL Travers’ Victorian George Banks character are as welcome at dinner party as a plague of locusts, Pearson wants Virgin Money to be the good guys. 

“One of the things I liked about the bank when I joined,” he says, “was that it was proud and open about having a transparent relationship with the regulators. A lot of the banks had got into conflict with the regulators, and in a sense they still are. There was selective disclosure – very much an approach that every point the regulator takes has to be negotiated hard. I saw that at RBS; those were the instructions we were given. 

“So it was refreshing to find a chief executive and a head of risk saying they wanted to turn that on its head – to be a partner with the regulator.” 

He adds: “That approach is ahead of its time and is what the regulator was hoping for. But a lot of damage was caused by relationships with other banks.” 

In practice, explains the general counsel, “that means when an issue arises we don’t sweep it under the carpet or delay informing the regulators. We have a trusting and open relationship with them. We share the issue, and that applies both to business as usual and the changes around remuneration. We will always talk through proposed remuneration structures. That ethos sets the right tone.” 

Pearson notes that, as a private company, Virgin Money is not required to make the same disclosures as must the bigger, publicly quoted banks.

“But we have ambitions to grow and in due course possibly to become public,” he reveals. “So we have a target of increased disclosure, which is an unusual trajectory for a company.” 

Open approach

Nonetheless, the senior lawyers claim to have frequent engagement with both the Financial Conduct Authority and the Prudential Regulatory Authority, with regulation staff attending bank board meetings.

“We have an open dialogue with them,” says Marshall. “They get sight of our board papers. It’s a different approach to that of the former Northern Rock business.” 

Indeed, Pearson maintains that the legal department is working to ensure the Virgin Money board and executives “are trained to meet the regulatory challenges and increased public scrutiny that will come with more disclosure”. 

While all staff at Virgin Money have to get used to seeing red, the legal department’s plan is that the regulators won’t.

pearson Virgin

Stephen Pearson
General counsel, Virgin Money

A native Scot, Stephen Pearson qualified in 1985 at Lanarkshire high street firm Ballantyne & Copland before moving to Glasgow’s Dorman Jeffrey, which subsequently was taken over by Dundas & Wilson (itself now due to be subsumed into CMS). 

His big break came with the City ‘big bang’ in 1987. Pearson joined magic circle player Linklaters, staying for six years as an associate. In 1993 he moved with a colleague to Travers Smith Braithwaite (now Travers Smith) to launch a corporate recovery department, having evolved along the way into a litigation specialist. 

A leading Travers client was RBS and “completely out of the blue” Pearson joined the world of banking, returning north of the border with RBS in 2001. At the time the bank did not have a specialist litigation team, so Pearson launched one from its Edinburgh headquarters. 

But along came the 2007 acquisition of ABN Amro and a firestorm of disaster in the markets, causing the virtual collapse of the bank. However, Pearson stayed on for nearly two years after a new RBS leadership came on board, “trying to answer questions over why it all happened”. 

Again out of the blue, at the beginning of 2010 Pearson bumped into Virgin Money chief executive Jayne-Anne Gadhia at Edinburgh airport.

“She winked at me and asked if she could ring me. I said ‘of course’, and by the time the plane had landed I had an email asking me to come in for a coffee to see the new Edinburgh offices. I did, and on the day she said she’d put together a new board and was lacking a general counsel – would I do it? 

“I was surprised at how direct she was, even though that is very much her style. I remember leaving and thinking of at least 10 reasons why it would be a really stupid thing to do, but then thinking ‘yes, I will’. How often do you get the chance to build a new bank, especially after everything the sector had been through?”

Virgin Marshall

Katie Marshall
Company secretary, Virgin Money

After qualifying at the Newcastle office of Eversheds in 2001 Marshall stayed in the firm’s corporate department for another 10 years. While there she did a secondment at Northern Rock in summer 2007 to assist with corporate governance advice. 

Unfortunately, that was not the best of years for Northern Rock. By September there was a run on the bank, and Marshall returned to Eversheds. But two years later she went back to Northern Rock to work on the final stages of splitting the bank into ‘good’ and ‘bad’ parts. 

Despite that division, says Marshall, “we spent much of 2010 servicing both banks, which was quite unique”. 

In the run-up to the sale of the good slice of Northern Rock to Virgin Money, Marshall was responsible for managing the commercial team as well as overseeing treasury work. 

“I loved my time at Eversheds but now have a clear preference for in-house,” says Marshall. “You’re very much part of a business. Yes, we provide an awful lot of legal advice, but we also provide a lot of commercial business advice. Virgin Money is keen for lawyers to gain a broad range of experience across the business, so they move around from risk to audit and elsewhere.”

Nuts and bolts of the Northern Rock deal

Pearson describes the nuts and bolts liaison with the Government over the sale of Northern Rock as “a positive and a challenge – it was positive in the sense we found them straight to deal with. It was a good triumvirate of the existing Northern Rock team, the Treasury team and ourselves. It was a constructive, albeit fraught, period of negotiation”. 

Assisting the Virgin Money lawyers was a team from Allen & Overy (A&O), specifically partner Andrew Ballheimer, co-head of the magic circle firm’s global corporate practice unit. Ballheimer had been on board for the stillborn 2008 bid for Northern Rock and he came back for a second bite, while the Treasury instructed a team from global counterparts Freshfields Bruckhaus Deringer, led by corporate finance head Barry O’Brien. 

Despite a consensus among the parties that a deal was more a political and economic must than simply desirable, there were still hitches. Pearson remembers the darkest hour falling at an all-sides meeting at Freshfields’ Fleet Street offices on an evening near the end of the process.

“The Treasury team told us they had five or six serious issues with elements of the bid and proceeded to recount them,” he recalls. “I can’t remember precisely what they were, apart from the fact that at the time they all seemed quite troubling.” 

Despite having a “tight deal team” – including Pearson and fellow in-house lawyers Robert Ross, Sophie Chandauka and Chris Davidson – Virgin chief executive, Jayne-Anne Gadhia, was always part of the mix.

“She was brilliant,” relates Pearson. “She said, ‘leave all those points with me’. She went into another room, made some phone calls and within an hour the Treasury was satisfied we had proper answers.” 

Pearson, who in a previous life did a stint with RBS’s in-house legal team, recalls how novel that executive approach was.

“I remember thinking that if this had involved RBS – bearing in mind some of the bids I saw there over many years – problems of that nature would have caused at least a three-day delay, with people scuttling off to their trenches. Tables would have been banged and lawyers would have worked through the night. But Jayne-Anne stayed calm and got the right people quickly to sort out the problems. The Government was impressed.” 

The sale completed on 2 January 2012, with Pearson concentrating on the legal aspects of merging teams across the board, not least in the legal department.

“It’s all gone well,” he maintains. “It’s become an irrelevance among the staff as to which side they were on originally.”


Honeymoons and secondments

“Last November,” recalls Pearson, “we had a string of important commercial contracts coming up for negotiation. This coincided with two weddings and a birth in the legal department, so we had honeymoons and paternity leave all clashing. 

“Bond Dickinson sent a commercial contracts partner and a more junior lawyer who covered us for a month. It worked out well for them as the firm – having just merged – was keen to hear from us about how our integration was working and how we were dealing with cultural change. 

“We’re good at that in this company and a lot of firms are interested in that story.” 

Marshall adds that Newcastle firms are keen to provide Virgin Money with secondees.

“That’s a huge value to us,” she admits. “We’ve had up to six at a time – a mix of trainees and associates. We always have two or three trainees from firms – a couple of firms in Newcastle offer it as part of their rotation. They see it as a fundamental part of their training.”

A fresh approach to working with advisers

As befits a business created by a bearded hot air balloon pilot who paints himself as a commercial iconoclast and an early adopter of the ties-are-for-squares stance, Virgin Money strives for an unconventional approach to nurturing relations with law firms. An example came on the anniversary of the Northern Rock purchase at the beginning of 2013. 

“We invited all the law firms we’d worked with – both on the Northern Rock and Virgin Money sides – to lunch,” recalls Pearson. The partners were hosted at the refurbished Gosforth head office. 

“Many had never been before,” says the general counsel, recalling that the star attraction was Virgin Money chairman Sir David Clementi, a former deputy governor of the Bank of England, but better known to lawyers for his groundbreaking 2004 report on legal profession regulation, the precursor to the Legal Services Act 2007 and the birth of alternative business structures. 

“It was really interesting to watch the reaction of the firms as they came in,” chuckles Pearson. “Some were quite nervous. Afterwards I said to a couple ‘you looked a bit jumpy, what’s up?’ What they were worried about was being locked in and told that unless they reduced their rates by X per cent they weren’t being allowed out – and they certainly wouldn’t be getting any future work. I got the impression they had experienced that before. 

“But all we said to them was ‘thanks very much for coming’, gave them a nice lunch and then said ‘we look forward to working with you’. It was amazing to see their surprise. And in return, we’ve found that when we need to reduce rates or write down work-in-progress on a matter they’re much more receptive. We’re not using the blunt instrument of simply beating them up over fees – we’re in a proper relationship.” 

Building proper relationships does not mean Virgin Money is a soft touch on tenders and billing structures. Pearson says the bank rarely doles out major instructions without giving two or three firms a chance to pitch.

“There’s no doubt it creates better value,” he confirms. “It focuses the mind of the firm on how to do the job effectively and competitively. And it means that when the job commences the firm chosen can hit the ground running because the lawyers have thought about it.” 

In addition to beauty parades the bank frequently uses virtual pitching techniques, particularly for treasury work.

“We have a robust selection criteria for assessment,” says Marshall. “We’re centred on people and relationships in Virgin, and we apply that attitude to the process. So good value is a key driver, but it’s not the sole influence. Added-value elements – in addition to secondees – such as sharing training and know-how, are important to us.”

Virgin Money panel



Bond Dickinson 

Ward Hadaway



Dundas & Wilson

Morton Fraser

London and globally

Allen & Overy

Baker & McKenzie


Clifford Chance

This is an informal panel. Virgin Money also has access to Virgin Group’s list of firms