LEAD: Bailed-out British bank sold back to private sector

Nov 17, 2011, 14:55 GMT

London - Northern Rock, the British mortgage lender whose collapse symbolized the 2008 banking crisis Thursday became the first nationalized bank to return to the private sector, after being bought for 747 million pounds (1.17 billion dollars) by businessman Richard Branson.

Virgin Money, Branson's financial services company, bought Northern Rock plc for approximately half of the 1.4 billion pounds of government funds spent on the 2008 bailout, leaving the taxpayer with a loss of between 400 million and 650 million pounds.

Following its nationalization in February, 2008, the government split Northern Rock in two. Northern Rock plc became the 'good bank' and Northern Rock (Asset Management) became the 'bad bank,' which remains in government hands and still has debts of around 20 billion pounds.

George Osborne, Britain's Chancellor of the Exchequer, welcomed the deal, announced by the Treasury Thursday. The cash takeover deal is expected to be completed by the end of this year.

'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,' said Osborne.

'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.'

Northern Rock, which was brought down by risky mortgage lending, was bailed out by the Labour government of Gordon Brown after a run on the bank by angry savers at the end of 2007.

Osborne said 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.

Branson, whose earlier attempt to buy Northern Rock in 2008 was rejected, said Thursday that he hoped to bring some fresh ideas and new competition to British banking.

'Virgin has a history of entering new sectors to improve service and provide value for customers. We plan to do the same in banking,' he said.

Branson, one of Britain's most prominent self-made entrepreneurs, also owns Virgin Atlantic airlines, a railway company as well as having an interest in space tourism.

Virgin Money is a banking and financial services network set up by Branson in 1995. The purchase of Northern Rock will turn Virgin Money into a fully-fledged retail bank with a presence in the mortgage market for the first time.

It will have 75 branches and around 2,500 staff, one million customers, a mortgage book of 14 billion pounds and retail deposits worth 16 billion pounds.

Its headquarters will be in Newcastle, in north-east England, which was also the home of Northern Rock.

'The great thing about this business combination is that he two businesses lock together very well,' said Virgin Money chief executive Jayne-Anne Gadhia.

Virgin Money, which has pledged to make no job cuts for three years, confirmed that it planned to float the bank's shares on the London stock exchange within two to five years.

Virgin Money is backed by Wilbur Ross, the billionaire Wall Street investor, as well as an Abu Dhabi investment fund.

The sale is subject to regulatory and EU merger approval.