Friday, 18 November 2011

Branson takes Northern Rock private

By Sharlene Goff, Elizabeth Rigby and Patrick Jenkins of the Financial Times

Sir Richard Branson is taking nationalised bank Northern Rock back into private hands four years after its collapse triggered widespread panic across financial markets. Virgin Money, backed by a consortium including US financier Wilbur Ross, has agreed to buy the bank for £900m ($1.42bn), including debt. The government has taken a loss of up to £500m on the “good” part of Northern Rock – which it propped up with £1.4bn of equity in 2010. Ed Balls, shadow chancellor, questioned whether it was the best time to sell banking assets given that markets were “in turmoil”.

Analysts said the price – which includes £747m in cash, £150m of debt and a further £130m depending on future business performance – was reasonable considering the dire state of the economy. The total return from Northern Rock will also reflect the contribution from its £45bn old loan portfolio, which has made about £600m of profit. George Osborne, chancellor, said the deal offered “value for money”, adding: “It was clear to us that this was the best deal for the British taxpayer. We were getting more money back than any other deal on the table.”

The sale marks the end for one of the most notorious names in British high street banking. Northern Rock will be rebranded as Virgin when the deal completes on January 1. People close to the deal said Mr Ross was the biggest investor, putting up £260m of cash, compared with £50m apiece from Virgin Group and Stanhope Investments, the Abu Dhabi fund. Virgin will have a stake of about 46 per cent in the newly enlarged Virgin Money, with Mr Ross holding 44 per cent and Stanhope close to 10 per cent.

Sir Richard’s ambitions for Virgin are muted despite his desire to challenge the UK’s biggest banks. It does not plan to open more branches than the 75 acquired and will not launch current accounts until 2013. Mr Ross plans to sell out in a few years when Virgin will look to float part of the bank for 1.5 times book value, compared with the 0.8-0.9 ratio paid by Virgin. Lord Myners, the former Labour city minister, said given the “respectable” price paid, he was “not sure the backers on the Virgin deal will enjoy a particularly good return”.

Virgin Money was advised by Greenhill and Virgin Group by Quayle Munro. The government was advised by Deutsche Bank.

Financial Times & Steve Bell, the Guardian