Northern Rock bank sold at loss, three years after meltdown

17th November 2011, Comments 0 comments

British bank Northern Rock, nationalised at the height of the global financial crisis in 2008, was sold on Thursday to Richard Branson's Virgin Money in a deal leaving the taxpayer with losses.

The coalition government has agreed to sell Northern Rock to online lender Virgin Money for £747 million ($1.18 billion, 872 million euros) in cash, although the final amount could rise to about £1.0 billion, the Treasury said.

The British taxpayer has injected £1.4 billion of public funds into the bank, whose nationalisation three years ago sent shockwaves through the global financial markets.

"The government is selling Northern Rock plc to Virgin Money. It represents a significant step in returning public sector stakes in banks to the private sector," the Treasury said in a statement.

"The sale is in the best interests of the taxpayer, secures the long-term future of the company and will increase competition in the banking sector."

Finance minister George Osborne said the sale represented "the best deal for the British taxpayer", adding that it was "an important first step in getting the British taxpayer out of the business of owning banks."

Northern Rock was plunged into crisis in mid-September 2007 when its exposure to the credit crunch forced it to seek emergency assistance from the Bank of England, sparking the first run on a British bank in recent history.

The lender was last year split in two, forming a so-called "good bank" for its healthy businesses and a "bad bank" management company to wind down toxic assets. Only the "good" bank -- Northern Rock plc -- has been sold to Virgin.

The takeover is expected to be completed by the end of the year, subject to regulatory and EU merger approvals.

The deal will cover 75 Northern Rock branches, one million customers, 2,100 employees and a £14-billion mortgages book, as well as its £16-billion retail deposits book.

Virgin Money has committed to making no compulsory redundancies at Northern Rock for at least three years from completion of the deal. It also pledged to expand its branch network.

Founded in 1995, Virgin Money has three million customers and is backed by Wilbur Ross, the billionaire Wall Street investor, as well as an Abu Dhabi investment fund.

"Virgin has a history of entering new sectors to improve service and provide value for customers. We plan to do the same in banking," Branson said on Thursday.

Northern Rock was nationalised in February 2008 by the Labour government which was last year ousted by the current Conservative-Liberal Democrat administration.

Labour's finance spokesman Ed Balls questioned whether the government was right to take a loss on the lender.

"We will need to look at the details. Given the original money put in from the taxpayer was £1.4 billion, we are going to get less back," he said.

© 2011 AFP

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