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
    0

    Comment number 233.

    169 writingsstillonthewall - I got the same insider gen from a "fat bloke in the pub" We're going to be rich. Rich. Rich I tell you!

    I'm preprared to share this knowledge on this foolproof to anybody who sends £250. Chancellors of the exchequer, governors of the BoE and prime ministers - past and present, need not apply.

  • rate this
    +2

    Comment number 232.

    Well I've more faith in Richard Branson to look after it than George Osborne. I'd consider opening an account with them now.

    And it's £474m more than we had yesterday.

  • rate this
    +3

    Comment number 231.

    The failure of government was that of the last Labour government who rushed in to save a bank with a flawed business model, a move motivated by short term political needs not long term financial considerations

    Perhaps Peston's blog could be more balanced rather than be the voice with the opposition

  • rate this
    -2

    Comment number 230.

    What is going on here, about time the tax payer stopped bailing out failing banks. This so called government need to get a grip!!! As a tax payer I would like to see our taxes going to better use. If not we should have an opt-out option and a pay as you go system.

  • rate this
    -1

    Comment number 229.

    I hope Robert Peston is wrong when he impies the British public will take a loss on this. What disturbs me here is the quick 'exit'...why not sit around a while and see the asset mature & thereby make ....(us)... more money.
    Do ANY of our politicians know what they are doing?

  • rate this
    0

    Comment number 228.

    The sale of Northern Rock losing upto £650m is, as Chancellor George Osborne said, "... value for money....".
    Only in Mr Osbourn's deluded mind would you call a sale at just over half its worth, 'value for money'. It is clearly idealogical.
    As a tax payer, and in a small part a former bank owner, I feel robbed.

  • rate this
    -1

    Comment number 227.

    Its incredible that once again the taxpayer loses out, why would you want to sell a company with a 50 % deficit on the initial cost. Also why haven't they adopted a more structed pay back system, so that the tax payer could benefit on a longer term basis,if the company is successful. It seems that once again the only winners are big business.

  • rate this
    +1

    Comment number 226.

    If Labour would have let Virgin buy it when it was on the verge of collapse in 2007 then the tax payer wouldn't have had to bail it out.

    Well done Labour, another cock up as always, you nationalised it and now the taxpayer will only get 2/3 of the money back! Well at least jobs are protected and the Virgin group at least won't let the bank suffer.

  • rate this
    +4

    Comment number 225.

    "aldousr
    This must beat Gordon's selling of the gold reserve at a low price"

    What you all fail to understand is that assets are worth what people are prepared to pay for them at the time you want or need to sell them. Whether they are worth more or less earlier or later or when you bought them is entirely irrelevant. In 2000 gold was worth $250/oz; that's what GB got. In 2011 NR is worth £747m.

  • rate this
    +4

    Comment number 224.

    It's ironic that the British taxpayer has been well and truly f*!"_@ by a Virgin.

  • rate this
    +1

    Comment number 223.

    What no tender? The Tax Payer has yet again been taken for a ride by the Tories.

  • rate this
    +2

    Comment number 222.

    I'm no expert, but with the 'government' making financial decisions like this its not difficult to see how we came to be in this mess. I despair (again)..

  • rate this
    +3

    Comment number 221.

    201.Sixp

    I'll have to correct you. The part being sold is making £223.4m loss. The part being kept - the 'bad debt' side - is making £400m profit.

    The loss is not £650m, as you can tell from the article that £200m extra is deferred - not conditional.

    The money put in has no bearing on the sales price of a company. The loss is entirely irrelevant; it's about NR's current market value.

  • rate this
    0

    Comment number 220.

    "186.Green Future
    So, why did NR go bust then? Answer, People\companies stopped paying interest on the debts because they were insolvent and cannot pay anything"
    It was actually the NR business model lending long term, financed by borrowing short term, that's why they went bust. Most of the Bad Bank loans are still being serviced by the original borrowers like any other mortgage company.

  • rate this
    +1

    Comment number 219.

    Speechless! The Northern Rock deal plus so-called 'cost savings' at the MoD have *cost* over a billion pounds - and that's just the news this week! Can't we impeach these bozos? People are queuing for food parcels, for goodness sake! What's the point of all this suffering if the government is throwing away all the so-called 'savings'? They know the price of everything but the value of nothing.

  • rate this
    +7

    Comment number 218.

    re 181. locust
    >>>bbc fudging the ratings yet again? - vote negative and you get a positive rating? more corrupt than any bank/govt/institutions - but it is the bbc?

    8-) When you load a page the rating is fetched. When you click up or down for a rating the software goes back and gets the LATEST rating. Since several 1000 people might be on at any time, rapid changes in ratings will happen.

  • rate this
    0

    Comment number 217.

    Yet another kick in the teeth for the British taxpayer the unemployed the disabled and the poor and needy. The only difference between Camerons government and Thatchers of the mid eighties is that she had silver hair. I would be worried if I were you Very worried......

  • rate this
    +3

    Comment number 216.

    63- scoobysnack66- 'Reality' is what a business is worth, not how much the tax payer had to pay to bail it out. We need whatever this business would fetch, and if left to 'wither on the vine' of disinterested public ownership it would before long be worth nothing at all.

  • rate this
    +2

    Comment number 215.

    I love these comments "oh well they used my money to buy it when will I get my money back?" im sure you can expect your 0.0000001p in the post any day! People need to realise that although we might be "tax payers" the few grand we have paid in tax does not entitle us to a cut of future sales! The biggest UK tax payers are… the banks! Billions in profits (usually) and thousands of staff!

  • rate this
    +1

    Comment number 214.

    You don't fool me! Branson, stupid enough to invest £747m into a bank making losses, most unlikely. This is the boy's club in action doing some sweet deals with each other and joe public loses out yet again. When will we accept that nobody cares anymore the rich get richer at the expense of the workers, just tug your forelock and say yes sir, thank you sir!

 

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