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Why this ASX bank’s share price is up 3%

The share price of United Kingdom based ASX bank CYBG Plc (ASX: CYB) is up 3.4% at the moment.

The former National Australia Bank Ltd (ASX: NAB) business operates Clydesdale Bank, Yorkshire Bank and now Virgin Money in the UK. Although soon all of them will be re-branded to Virgin Money.

The deal to merge with Virgin Money makes perfect sense because there is around £120 million of annual synergies that have been identified. There’s also additional synergies that could be generated through linking with other Virgin companies. Creating a combined business means it is a truly national challenger to the major banks like Barclays.

Overall, CYBG said that the deal would be materially accretive for earnings per share (EPS) and accelerate its progressive dividend ambition.

So, why is the share price up today?

There has been fear surrounding the lack of progress of Brexit. The ‘Remainers’ said all along that leaving the EU could damage the UK economy and banks would be particularly at risk if there couldn’t be an agreement between the UK Government and the EU.

However, European media are reporting that the UK and EU have agreed the text of a draft withdrawal agreement at a technical level by officials from both sides.

A key sticking point was an Irish customs border, but now there is apparently a UK-wide ‘backstop’ which will prevent border checks.

There are also agreements based on citizen rights, a transition period and a £39 billion divorce ‘bill’.

The UK pound sterling rose 1.4% on news of the diplomatic breakthrough.

However, it may not be plain sailing from here with the ‘Brexit’ side of UK politics arguing this deal will keep the UK under EU rules for a long time to come.

Is CYBG a buy?

Out of all the banks on the ASX, like Commonwealth Bank of Australia (ASX: CBA) and Bank of Queensland Limited (ASX: BOQ), I would put CYBG at the top of that preference list. The UK housing market and household position looks like Great Britain is better place for a banking investment than Australia.

However, I’m quite wary of any bank shares. Scandals and recessions can have a terrible toll on profit.

Its share price has risen 18% since February 2016, but I’ll be waiting for a UK recession before buying shares of CYBG even if it is trading at only 10x FY19’s estimated earnings.

If I were looking to buy shares today I’d much rather go for one of these top stocks for my portfolio.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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