British Government sells Northern Rock to Branson at a loss
THE BRITISH government has sold taxpayer-owned Northern Rock to Sir Richard Branson’s Virgin Money in a £1bn (€1.17bn) deal as it off-loads a big liability for the Treasury - but at a estimated £400m loss.
UK Financial Investments said it has agreed to sell 100pc of Northern Rock to Virgin Money for £747m in cash immediately, but this could potentially rise to around £1bn.
Under the deal, another £50m is “expected” to be paid within six months. The Treasury will also benefit by to up to £80m in the bank floats in the next five years and retain £150m of Tier 1 capital notes.
Northern Rock, which signalled the start of the financial crisis in Britain when it collapsed in August 2007, is the first bank to be returned to the private sector.
The Newcastle-based lender received a £1.4bn bail-out when it was nationalised in February 2008 at the height of the credit crunch. So on paper, taxpayers end up with a loss of £400m, but this could rise to £650m.
George Osborne said the deal was a “good thing” for taxpayers, consumers and the banking system.
He said: “We are, with the announcement today of the sale of Northern Rock, starting to get our banking system back into better shape, lending to people, helping families.”
In January last year the company was split into a “good bank”, which Virgin has bought, and Northern Rock Asset Management, the “bad bank” of closed mortgages and unsecured loans which remain in Government ownership.
Virgin Money beat competitors including JC Flowers to buy the bank which includes a £14bn mortgage book, a £16bn retail deposit book and a million customers.
It plans to merge the assets with its existing Virgin Money business to meet the Government’s objective of creating a new competitor in Britain’s high-street banking.
As part of the deal, the group, which employs 2,100 people, agreed that there would be no compulsory redundancies at Northern Rock for three years and none of the existing 75 branches will close.
The headquarters will stay in Newcastle.
To start with the business will continue to focus on UK retail savings and investments but will aim to launch current accounts in 2013.
David Clementi, chairman of Virgin Money, said: “It is our intention to build a significant banking competitor in the UK and to take that business to the public markets within five years through an IPO”.