Sir Richard Branson’s Virgin Money is to buy nationalised lender Northern Rock in a £747 million deal, the Treasury has announced.
The takeover of the Newcastle-based bank, which was taken into public ownership in February 2008, is expected to be completed by the end of this year.
The Government will receive an initial £747 million with the potential to secure £1 billion in total, less than the estimated £1.4 billion it has injected into the bank during its period of public ownership. Virgin Money failed in a bid to buy the bank following its collapse in 2007.
The operational headquarters of the combined business will be in Newcastle, while Virgin Money has pledged no further compulsory redundancies beyond those already announced for at least three years.
Virgin Money chief executive Jayne-Anne Gadhia said the deal would create a “major new competitor” in the UK retail banking sector. She added: “The two businesses complement each other well and together they will create a strong bank with over four million customers.”
The acquisition includes 75 branches and 2,100 staff, one million customers, a £14 billion mortgage book and retail deposits worth £16 billion. Virgin Money, which was founded in 1995, has around three million customers.
Chancellor George Osborne said there would be a “powerful new presence on the high street” which would offer “real choice and competition”. He said: “It’s also good for British taxpayers – we are getting some of the money back that we put into the banking system under the last government.”
He added that the Treasury had taken independent advice on the deal and “looked carefully at all the figures”. “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,” he said.
The Government will receive £747 million on completion and a further £50 million within six months. An additional £150 million will be realised in the form of a financial instrument, while up to £80 million will be paid if the business is sold or floated in the next five years. This could take the total proceeds for the Treasury to more than £1 billion.
The disposal excludes Northern Rock Asset Management, which remains under Government ownership and holds a book of residential mortgages and unsecured loans.