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Government sells Northern Rock to Virgin Money

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by Jan Harris
Government sells Northern Rock to Virgin Money

The government has announced the sale of Northern Rock to Virgin Money for £747m, representing a loss of £650m on the £1.4bn of public money it injected into the Newcastle-based bank.

The chancellor, George Osborne said that the deal was “an important first step in getting the taxpayer out of the business of owning banks”.

Northern Rock was taken into public ownership at the beginning of the credit crunch when it became the first bank in 150 years to experience a bank run.

Confidence in the bank plummeted when it was forced to ask the Bank of England for a bail-out facility after banks stopped lending to each other in the global financial crisis.

It had previously relied on cheap wholesale credit to fund its aggressive growth strategy.

Under government ownership it was split into Northern Rock Plc and Northern Rock (Asset Management) which took on the bank’s bad debt.

It is Northern Rock Plc which is being sold to Virgin Money and there are no plans to sell Northern Rock (Asset Management).

The government has assured customers that there will be no change to accounts or services as a result of the sale and the bank will continue to have its headquarters in Newcastle.

Ron Sandler, Northern Rock executive chairman, said: “The return of Northern Rock to the private sector has always been one of our key objectives.

“We said that this would be done at the right time and when there was a proposition in the best interests of taxpayers and other stakeholders.
“It is a very positive outcome for the company following a significant restructuring process.”

Virgin Money hopes to increase the number of Northern Rock branches from its current 70 and has no plans to make a further job cuts.

It is hoped that the deal will increase competition in the retail banking sector which is currently dominated by HSBC, Barclays, Lloyds Banking Group, Santander and Royal Bank of Scotland.

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News posted: November 17, 2011

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