Government sells Northern Rock for £747m

17 Nov 11
The government has announced the sale of the state-owned Northern Rock bank to Virgin Money for an initial £747m, which could rise to more than £1bn by 2017.

By Richard Johnstone | 17 November 2011

The government has announced the sale of the state-owned Northern Rock bank to Virgin Money for an initial £747m, which could rise to more than £1bn by 2017.

The bank was taken over by the then Labour administration in February 2008, at the height of the credit crisis, after it was subject to the first run on a British bank in more than a century.

Later that year, the government also took large stakes in RBS and Lloyds Banking Group as institutions struggled with the impact of the financial crash on their investments.

Chancellor George Osborne said that the sale was ‘an important first step in getting the British taxpayer out of the business of owning banks’.

Northern Rock was split in two after the takeover. Virgin Money will purchase the so-called ‘good bank’ – still called Northern Rock – on January 1, 2012, subject to regulatory approval. This contains customers’ saving accounts and new mortgages. Northern Rock (Asset Management), which contains the bank’s bad debt of existing mortgages and unsecured loans, will remain in public hands.

On top of the initial cash payment, Virgin Money will pay £50m within six months of completion of the sale, to be followed by a further £150m. It will also have to pay the Treasury between £50m and £80m if it sells or floats Northern Rock within the next five years.

Returning the bank to the private sector will increase choice in UK retail banking, the government said, with Virgin Money pledging to expand the total number of branches over time.

Osborne announced the start of the sale process this summer. The decision to sell was based on advice from UK Financial Investments, the company set up to manage the Treasury’s shareholding in banks.

Keith Morgan, head of wholly owned investments at UK Financial Investments, said: ‘This sale revitalises Northern Rock by combining it with Virgin Money’s complementary business. The deal returns Northern Rock to the private sector and maximises value for taxpayers.’

Virgin Money confirmed it planned to float the bank within five years.

Chair Sir David Clementi said: ‘Returning Northern Rock to private ownership is an important step in rebuilding the UK banking sector, as well as an outstanding opportunity to enhance competition and financial stability whilst protecting jobs and the economy in the northeast of England.

‘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 initial public offering.’

The government has no plan to sell Northern Rock (Asset Management). It is part of the Treasury’s UK Asset Resolution company, along with bank Bradford & Bingley. These will be wound down in a way that maximises taxpayer value for money and repays combined debts of around £50bn.


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