Virgin Money Buys Northern Rock

Northern Rock is being sold to Virgin Money for £747m.

The bank was nationalised in 2008 following its near collapse at the onset of the global credit crunch.

The government subsequently split the bank into two, Northern Rock plc, and Northern Rock Asset Management (NRAM), into which was placed its bad debt.

Northern Rock plc will be rebranded as Virgin Money, which has pledged no compulsory job cuts for three years.

The bank currently employs 2,500 people, down from 5,500 when it was nationalised.

Sources at Northern Rock said that there were cheers at the bank's Newcastle headquarters when the news of the Virgin Money deal was announced.

Taxpayer loss
The government said Northern Rock customers would see no change to their accounts and services and would not need to take any action.

Taxpayers have injected £1.4bn into Northern Rock plc.

He added that in addition to the immediate £747m the government will get back following the completion of the sale, there is the potential for the Treasury to receive a further £280m over the next few years.

"So on paper, taxpayers end up with a loss of somewhere between £400m and £650m,"

The size of the losses contained in the bad bank part of Northern Rock are still uncertain, but could amount to as much as £21bn. This will include the payments to customers who were mis-sold Payment Protection Insurance.

'Safeguards jobs'
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.

"Don't forget that the enlarged Virgin Money will still be a minnow - less than a tenth of the size of the big banking beasts”

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"It represents value for money, will increase choice on the High Street for customers, and safeguards jobs in the North East."

The sale of Northern Rock plc is expected to be completed on 1 January 2012.

The government said it had no plans to sell Northern Rock Asset Management (NRAM).

Virgin Money has pledged to establish a new headquarters in Newcastle, where Northern Rock is based.

It also also agreed not to close any branches and instead to increase their number "as the business' growth allows", and support Northern Rock's charitable foundation for a year.

In addition to paying £747m on completion of the sale, the government said Virgin Money was "expected" to pay an additional £50m within six months, and then a further £150m.