Virgin Money buys Northern Rock for £747m in deal which leaves taxpayer £400m out of pocket

Published 17th Nov 2011

* Government has invested £1.4billion in troubled bank
but will receive a maximum of £1billion
* Offer is 'the best deal' for taxpayers, says
Chancellor
* Branson's group will not buy the 'bad bank' spun off
from Northern Rock



Northern Rock is to be sold to Virgin Money in a deal worth over £700million, the Treasury announced today.

The takeover of the Newcastle-based bank, which was taken into public ownership in February 2008, is expected to be completed on 1 January 2012.

The Government will receive an initial £747million with the potential to secure £1billion in total.

This is significantly less than the estimated £1.4billion it has injected into the bank during its period of public ownership.

At the time the bank was nationalised, the Labour Government predicted that taxpayers would eventually make a profit on the deal.

But Chancellor George Osborne insisted that the sale to Virgin Money was 'the best deal for the British taxpayer', despite the huge losses the State will incur.

Virgin Money failed in a bid to buy the bank following its collapse in 2007.

Rumours that the bank was struggling to fulfil its obligations triggered huge queues outside its branches from customers trying to withdraw desposits, and threatened a bank run.

After its State takeover, Northern Rock was split into two parts, a solvent 'good bank' and a 'bad bank' which took on the company's riskier liabilities.

Only the 'good bank' will be bought by Virgin Money, the financial services group which is part of Sir Richard Branson's business empire.

The operational headquarters of the combined business will be in Newcastle, while Virgin Money has pledged no further compulsory redundancies beyond those already announced for at least three years.

Virgin Money chief executive Jayne-Anne Gadhia said the deal would create a 'major new competitor' in the UK retail banking sector.

She added: 'The two businesses complement each other well and together they will create a strong bank with over four million customers.'

The acquisition includes 75 branches and 2,100 staff, one million customers, a £14billion mortgage book and retail deposits worth £16billion.

Virgin Money, which was founded in 1995, currently has around three million customers.

Mr Osborne said there would be a 'powerful new presence on the high street' which would offer 'real choice and competition'.

He added: 'It's also good for British taxpayers - we are getting some of the money back that we put into the banking system under the last government.

'And it's also good for the north-east of England, because we are seeking to protect jobs there and make sure that the headquarters of Virgin Money will be in Newcastle.'

He added that the Treasury had taken independent advice on the deal and looked carefully at all the figures.

'It was clear to us that this was the best deal for the British taxpayer, we were getting more money back than any other deal on the table,' he said.

The Government will receive £747million on completion and a further £50million within six months.

An additional £150million will be realised in the form of a financial instrument, while up to £80 million will be paid if the business is sold or floated in the next five years.

This could take the total proceeds for the Treasury to more than £1billion.

Today's disposal excludes Northern Rock Asset Management, which remains under Government ownership and holds a book of residential mortgages and unsecured loans.

Source: ' ThisIsMoney '

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