Virgin Money Holdings has purchased Northern Rock PLC for £747 million ($1.2 million), and statements confirmed that the British government will receive an additional £50 million within six months.
If the bank is listed on the stock exchange, it will also receive a further £230 million.
The sale is expected to be completed on the first of next year.
Northern Rock was nationalized in 2008 when it was near collapse. The government split the bank into Northern Rock PLC and Northern Rock Asset Management. All the bad debt was placed in Northern Rock Asset Management, which the government has no plans to sell.
"Important First Step"
Chancellor George Osborne told the BBC: "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.”
Northern Rock Executive Chairman Ron Sandler said that the return of Northern Rock to the private sector has always been one of their key objectives, and "it is a very positive outcome for the company following a significant restructuring process."
Northern Rock handles savings accounts and mortgages, while Virgin Money handles investments, insurance and credit cards. There are no plans to close any of Northern Rock’s branches or to layoff any of its 2,300 employees.
Virgin Money was not the only bid. NBNK Investments PLC and JC Flowers & Co also submitted bids. Virgin Money attempted to buy Northern Rock in 2008 but was rejected. Virgin Money is owned by billionaire Richard Branson.
Good For Taxpayers?
Is the sale of Northern Rock good for taxpayers? More tax money has been invested in the bank than will be recouped from its sale.
Osborne told reporters: "It's part of recovering the British economy that we're starting to return some of these bank shares to the private sector. The government is straining every sinew, doing everything possible to help the British economy move forward at a time when so many other economies in the world are in trouble. The government is doing everything it can do to help people at this difficult time. Things like the sale of Northern Rock are a sign that we are taking every step to move the economy forward.”
The Guardian's city editor Jill Treanor commented on the newspaper’s website that “the bad bit of the Rock still exists and has been merged with the nationalised (sic) mortgage book of Bradford and Bingley to create something called UK Asset Resolution (Ukar).
Essentially it is in run off so the loans and guarantees from taxpayers get slowly paid off as people pay off their mortgages. The last mortgage payments are technically due post-2040, which means taxpayers could be stuck with that burden for some time.”
Key Statistics – Banking Services in the UK (source: British Bankers Association)
- In September 2011, the annual growth for main bank net mortgage lending in the UK was 1.6%. This was 0.6% ahead of August.
- Nearly 66% of all mortgages, half of all consumer credit and 60% of new credit cards are through the UK’s main banking groups.
- In September 2011, annual growth in borrowing was 2.9% compared to 2.6% in September 2010.