The sale of Northern Rock to Virgin Money for £747m - and at a massive loss to taxpayers - should shake up the banking sector, say analysts.
Consumers should benefit from a wider range of mortgages, savings and insurances, and will very likely be incentivised with discounts on other Virgin brands including holidays, travel and wines.
The company will be entirely rebranded to Virgin Money but with no change to Northern Rock’s existing intermediary operations, whilst existing customers will find their bank accounts taken over by Virgin Money.
No compulsory redundancies are on the table for at least three years after the deal and the branch network is set to expand under its new ownership. Virgin Money said in a statement that it is committed to future growth.
Sir Richard Branson, Virgin’s founder, said: “Banking in the UK needs some fresh ideas and an injection of new competition.
“Virgin has a history of entering new sectors to improve service and provide value for customers. We plan to do the same in banking.”
Jayne-Anne Gadhia, Virgin Money chief executive, said the group aimed to build a “true banking alternative” for the UK consumer, “one centred around our ambition to make everyone better off”.
The sale, expected to complete in January, does not include ‘bad bank’ Northern Rock Asset Management.
Virgin Money’s purchase involves an initial payment to the Treasury of £747m cash, but could eventually yield £1bn for the Government. Around £50m more cash will be paid within six months. Virgin Money will then issue the Treasury with Tier 1 Capital Notes with a par value of £150m and an annual coupon of 10.5%.
The Treasury also expects to receive an additional cash consideration of £50m to £80m after a stock market listing or sale in the next five years, depending on market conditions.
Chancellor George Osborne said: “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.”
Meanwhile, Virgin has not been totally ruled out of bidding for Lloyds branches, which it must sell under an EU ruling. It has not, however, put in a formal bid and was not considered a front-runner for the 632 Lloyds branches even before its purchase of Northern Rock – which now puts it in a position to expand both organically and by acquisition.
In the longer term, analysts say that the sales back to the private sector of in both RBS and Lloyds could be significantly harder to negotiate than that of Northern Rock. The Government has stakes of around 83% in RBS and some 40% in Lloyds after the taxpayer bailouts of 2008.
So, reluctant taxpayers may be saddled with at least some form of bank ownership for a while to come.
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