Northern Rock sold to Virgin Money

 

Chancellor George Osborne said: "We are creating a powerful new presence on the High Street"

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Northern Rock is being sold to Virgin Money for £747m, the government has announced.

The bank was nationalised in 2008 following its near collapse at the onset of the global credit crunch.

Northern Rock plc will be rebranded as Virgin Money, which has pledged no compulsory job cuts for three years.

BBC business editor Robert Peston said the sale would see taxpayers end up with a "paper" loss of somewhere between £400m and £650m.

The bank currently employs 2,500 people, down from 5,500 when it was nationalised.

On nationalisation, the government subsequently split the bank into two, Northern Rock plc, and Northern Rock (Asset Management), into which was placed its bad debt.

Sources at Northern Rock told the BBC that there were cheers at the bank's Newcastle headquarters when the news of the Virgin Money deal was announced.

Taxpayer loss

The government said Northern Rock customers would see no change to their accounts and services and would not need to take any action.

Start Quote

What perhaps is most interesting is that the chancellor has decided to crystallise the loss now, rather than suspend the sale in the hope that markets recover enough to break even on the deal”

End Quote

BBC business editor Robert Peston said taxpayers had injected £1.4bn into Northern Rock plc.

He added that, in addition to the immediate £747m the government would get back following the completion of the sale, there was the potential for the Treasury to receive a further £280m over the next few years.

The size of the potential losses contained in the bad bank part of Northern Rock is still uncertain and it still owes the Treasury £21bn.

'Safeguards jobs'

Chancellor George Osborne said: "The sale of Northern Rock to Virgin Money is an important first step in getting the British taxpayer out of the business of owning banks.

Government losses on Northern Rock

"It represents value for money, will increase choice on the High Street for customers, and safeguards jobs in the North East."

The sale of Northern Rock plc is expected to be completed on 1 January 2012.

The government said it had no plans to sell Northern Rock (Asset Management).

Virgin Money has pledged to maintain its operational headquarters in Newcastle, where Northern Rock is based.

It has also agreed not to close any branches and instead to increase their number "as the business' growth allows", and support Northern Rock's charitable foundation for a year.

In addition to paying £747m on completion of the sale, the government said Virgin Money was "expected" to pay an additional £50m within six months, and then a further £150m.

If Virgin Money sells or lists the combined business on the stock exchange in the next five years, it will have to pay the government an additional £50m to £80m.

Virgin Money chief executive Jayne-Anne Gadhia confirmed to the BBC that the bank intended to float its shares on the stock market within two to five years.

Jayne-Anne Gadhia, chief executive of Virgin Money: "We think we have made a great offer"

She added: "The great thing about this business combination is that the two businesses lock together very well.

"Virgin Money has credit cards, insurances and investments, and Northern Rock has mortgages, savings and current accounts.

"There is no need for any jobs to be merged together, in fact this is a story for growth."

'Message of confidence'

Ron Sandler, Northern Rock executive chairman, said: "The return of Northern Rock to the private sector has always been one of our key objectives.

"We said that this would be done at the right time and when there was a proposition in the best interests of taxpayers and other stakeholders.

"It is a very positive outcome for the company following a significant restructuring process."

The Unite trade union said it hoped the announcement of the sale to Virgin Money "will be the start of a secure future" for Northern Rock's workforce.

The leader of Newcastle City Council, Nick Forbes, said it was "delighted that the future of Northern Rock has now been decided".

Northern Rock timeline

1965: Northern Rock Building Society founded after merger of Northern Counties Permanent Building Society and Rock Building Society

1997: Northern Rock goes public

September 2007: The BBC learns the Bank of England has given Northern Rock emergency financial support. Its shares drop 32% in a day and customers queue to withdraw their savings

November 2007: Virgin says it would be interested in taking over the bank

February 2008: Northern Rock is nationalised, the first such case since the 1970s. Chancellor Alistair Darling calls it a "temporary measure"

December 2009: The UK government splits Northern Rock into a "good" bank and "bad" bank, paving the way for a sale of its "good" assets to a third party

June 2011: Chancellor George Osborne confirms that he will sell Northern Rock to a single buyer

November 2011: Northern Rock plc is sold to Virgin Money for an initial £747m.

"The decision by Virgin Money to make Newcastle their home sends a message of confidence in our city and the wider North East," he said.

Adrian Coles, director general of the Building Societies Association, said the announcement of Northern Rock's sale was a "bittersweet moment".

"On the plus side, de-nationalising this bank is a positive step. However, we would have welcomed Northern Rock's return to the mutual sector after 14 years' absence," he said.

"Northern Rock had over 100 years as a successful building society, but only 10 years as a plc bank before the queues formed outside its branches."

A savings and mortgage bank, Northern Rock currently has more than 70 branches.

The bank was formed in 1997 when the former Northern Rock Building Society floated on the London Stock Exchange.

It was delisted following its nationalisation.

Virgin Money had approached the Treasury about making a bid for Northern Rock back in 2008, but it was rejected.

Virgin Money is part of Sir Richard Branson's Virgin Group.

 

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  • rate this
    -1

    Comment number 213.

    "So on paper, taxpayers end up with a loss of somewhere between £400m and £650m," said our business editor.
    You have to ask yourself why the Gov is selling this at a loss or do you feel Osborne needs the money for some token gesture idea in his autumn statement?

  • rate this
    +5

    Comment number 212.

    GO has sold the "good" NR, which is losing money. A big chunk of cash right now is good news, whilst the book loss is just that: a piece of paper.

    Meanwhile, the "bad" bit is still being paid off by borrowers, plus interest, so the taxpayer will probably end up in profit on the whole deal.

    The fine line between good and bad has never been clearer.

  • rate this
    0

    Comment number 211.

    Its no good caring anymore - the country has gone to the dogs. This aggressive kind of tumour ( Tory greedy capitalism) will burn itself out,sadly taking alot of good people along the way, because the masses will be out of work and have no money to buy goods. If there is a quick buck to be made the tories will sell it even if it would be more profitable in the long run to keep it.

  • rate this
    -1

    Comment number 210.

    Surely, this massive loss that GO has somehow agreed to, selling a bank NOW, the whole thing must now silience those fools whose only retort to criticism of their beloved coalition is "Brown sold Gold when is was cheap" - Well, I think GO has well and truly trumped that now...!

  • rate this
    0

    Comment number 209.

    @51. RtMcGill

    Yeah, it was sold at a loss so you owe Virgin Money...let me quickly work it out....ca. 2000 quid. WIll you be paying by cash or by card?

  • rate this
    -1

    Comment number 208.

    This must beat Gordon Browns selling of the gold reserve at a low price, they have sold of an asset at a bargain price in a recession while keeping all the bad debt that could result in further losses.

    While it may be good for Northern Rock, I can't see any way it is good for the tax payer who stands to loose out more in the future if those with bad debts default on the loans.

  • rate this
    +2

    Comment number 207.

    159.lapin-rouge
    "I dont understand how the 21bn of bad debt locked up in NR Asset Management can turn a profit?"

    Easy to understand, the people who owe the money are: -

    A: Paying an interest rate of circa 5%
    B. Some are reducing their capital owed.

    £21b @ 5% is £1m+ PA, thats why NRAM makes a profit. The goverment does not owe the money, it is owed the money.

  • rate this
    0

    Comment number 206.

    179.TONYCURRIEFANCLUB
    Whether you're right or wrong, with a name like that you're truly a knowledgeable person

    Anyway, Zinedine how do we get rid of £21bn debt? "The government said it had no plans to sell Northern Rock (Asset Management)." That's where the £21bn bad debt is. Which you and the rest of us will be servicing. Rip offf Britain.

  • rate this
    0

    Comment number 205.

    Come on now people, get serious and think positively - it's going to be the first deposit on the projected 100 billion projected shortfall (oops?) in borrowing estimates over the life of this Parliament because the number 11 abacus got stuck. Do we really have to put up with this for another four years?
    If I was George's granny I would be seriously worried.

  • rate this
    0

    Comment number 204.

    Now we know why the economy is knackered !! The ' Westminster Think Tank ' has the principle 'arse for elbow' ! What's supposed to happened boys --is--you sell for a Profit ! Get it !! Or are you lot just doing somebody a favour whilst at the same time 'doing 'us !

  • rate this
    -3

    Comment number 203.

    I don't think this is a bad idea, its not like Mr Branson doesn't know how to run a company and I'd rather him than some of the more shady characters who created the mess in the first place. The bad idea was not selling it to Mr Branson in the first place.

  • rate this
    +3

    Comment number 202.

    Sitting on here moaning about it isnt going to change anything. Nor is waiting for these swines to gain a heart and do the right thing

    Remember the 'big six' energy firms would rather see pensioners freeze or starve to death than cut their profits a little by offering them an affordable deal

    If we really want change the only way to get it is to march out there and take it ourselves.

  • rate this
    +2

    Comment number 201.

    Zinedine Zidane+Gambler
    -
    Correct me if I'm wrong but to quote
    "The government subsequently split the bank into two, Northern Rock plc, and Northern Rock (Asset Management), into which was placed its bad debt."
    Its the plc part that's going to Virgin so we are still left with the Asset Management part that's got the bad debt in it?
    + Peston points out we are losing £400m to £650m on the deal.

  • rate this
    0

    Comment number 200.

    189 duckoff suggest you have a read up on Mr bransons political stance before making assumtions.... he was Gordon Browns number 1 fan

  • rate this
    0

    Comment number 199.

    @ 166.jimpam
    Please excuse my ignorance and unwillingness to investigate for myself - but given there was a cost to the taxpayer of the shares in the first place, were you as an original shareholder not paid already?
    If Virgin floats you can buy some shares then...

  • Comment number 198.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +3

    Comment number 197.

    'We are creating a powerful new presence on the High Street.'

    Do you mean more riots, George?

  • rate this
    +2

    Comment number 196.

    It's nice to see so many people on here desperately trying to show this is a good deal for the taxpayer.

    If you would like to give me your names and addresses - I have a load of 'good deals' lined up for you.

    I got this latest one - called a pyramid scheme - everyone is making a FORTUNE at these - my mate Bernie tipped me off about them.

  • rate this
    +3

    Comment number 195.

    If I'm doing the maths correctly then the bad bank is 30 times bigger than the good bank. Please explain what is happening to the bad bank. Can it be brushed under the carpet or ejected into outer space, or is it dumped on us taxpayers. What a great deal!

  • rate this
    +22

    Comment number 194.

    How on earth can Mr. Osborne keep a straight face when he claims this is "value for money" for the taxpayer. We've lost £650m on the deal AND we are still holding on to all the bad debts.

    Once again the rich get richer at the expense of the taxpayer.

 

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