Northern Rock sold by government to Virgin Money for £747m
Thursday, 17 November 2011 10:33
Nationalised bank, Northern Rock is to be sold to Virgin Money for £747 million. It plans to establish a new headquarters for the bank in Newcastle.
The bank was nationalised in 2008 after a run on the bank almost caused it to crash before the government intervened at the height of the financial crisis.
The bank was split into two portions, the Northern Rock plc for normal banking customers and Northern Rock (Asset Management), into which the companies’ bad debts were placed.
Announcing the news, the 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.
"It represents value for money, will increase choice on the High Street for customers, and safeguards jobs in the North East."
As part of the agreed deal to buy the bank, Virgin Money has pledged to not make any further redundancies for three years. The bank currently employs 2,500 staff, a drop of 3,000 from when it was nationalised. It has also agreed not to close any branches and that it will increase branches as business growth allows it too.
The government has said that on top of the £747 million it expects Virgin Money to pay a further £50 million in six months time and possibly another £150 million at a later date. If Virgin sells the business on the stock exchange in the next five years it will have to pay the government an extra £50 - £80 million.
Northern Rock customers have been told that they will see no changes to their accounts and do not need to take any further action.
Kevin Mountford, head of banking at MoneySupermarket.com said: "The news this morning that the Government has sold Northern Rock to Virgin Money is good news for consumers, for two key reasons. Firstly the deal has been on the cards for a while and now that it has been finalised it will increase competition within the banking space.
“Secondly the news that the deal has been struck for £747 million in cash will benefit UK tax payers, as it loosens the shackles that the Northern Rock debt had on them since the bank became nationalised in 2008."
There are no plans to sell Northern Rock (Asset Management) at this time. This part of the bank still owes the Treasury (and taxpayer) £21 billion, which was used to bail the bank out in 2008.
It is expected that the sale of Northern Rock will take place on 1st January 2012.
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