Money News

Northern Rock sold to Virgin

Thursday 17 November, 2011

By Martin Fagan

The government has announced it is selling Northern Rock plc to Virgin Money.

The government said Virgin will pay £747million on completion of the sale and that Virgin Money was "expected" to pay an additional £50million within six months, and then a further £150million which Virgin raise in the form of a “capital instrument”, essentially a bond issue.

The sale of Northern Rock to Virgin is expected to be completed on 1 January, 2012. If the full sale price of almost £1billion is realised, it still represents a £1.4billion loss for the taxpayer.

The sale will not affect current customers of Northern Rock, who the government says will carry on their banking as usual. Customers do not need to take any action and can continue to operate their accounts and contact Northern Rock as they do now and the deal with Virgin means there will be no changes to their terms and conditions.

Virgin is buying the “good” bit of Northern Rock: 75 Northern Rock branches, one million customers, the £14billion mortgage book and the £16billion retail deposit book. The “bad” bit of Northern Rock - its asset management division with loss-making closed mortgages and toxic unsecured loans - will remain on the government’s books.

"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,” said Chancellor of the Exchequer George Osborne.

“It represents value for money, will increase choice on the high street for customers and safeguards jobs in the North East.”

Virgin Money has been keen to expand into retail banking with a presence on the high street as part of the deal. It has agreed not to close any existing branches of Northern Rock and instead to increase their number "as the business' growth allows".

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

Sir Richard Branson, founder of the Virgin Group said: “Banking in the UK needs some fresh ideas and an injection of new competition. I’m delighted we will get the chance [with Northern Rock] to create a new force in the market.

“Virgin has a history of entering new sectors to improve service and provide value for customers. We plan to do the same in banking.”

Virgin has yet to comment on whether or not it will retain the Northern Rock name or rebrand as Virgin Bank.