Northern Rock ends up at Virgin for £747m

The government has announced this morning that it is selling Northern Rock to Richard Branson's Virgin Money.

The Newcastle based building society which became one of the first casualties of the credit crunch and saw queues outside its door back in 2007, will net the government £747 million in cash on closing of the sale, with the potential in the future to receive over one billion pounds in total.

The combined business of Northern Rock and Virgin Money will establish a new competitor in the UK retail banking sector and, in doing so, will lead to an increase in choice for high-street customers.

It will help increase diversity in the retail banking sector as Virgin Money seeks to innovate and expand into new market segments according to the Treasury.

Virgin have guaranteed that there will be no further compulsory redundancies, beyond those already announced, for at least three years from completion.

They have also promised to retain and, over time, expand the total number of branches and will make Newcastle the operational HQ for Virgin Money.

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.

Rock turning

The bank that started the rot in Britain has released its results for last year.

Northern Rock has reported a pre-tax shortfall of £257.5 million for the 12 months to December 31, compared with a £1.36 billion loss in the previous year.

These are its lats results before it splits into a good half and a bad half,the banks way of protecting those famously toxic debts.

The results show that the second half of the year was far better than up to June with with a statutory profit of £466.7m compared to a loss of £724.2m in the first half.

The bank also increased its lending up to £4.2bn in 2009, compared with £2.9bn in 2008.However some worrying news about mortgage arreas which saw an increase from 4.28% at end 2009, compared with 2.92% at 31 December 2008.

Some good news though as The bank's chief executive, Gary Hoffman,followed in the step of other UK bank executives and waived his 700,000 bonus in response to public outrage over bonuses and pay.

The Rock continues to flounder

Northern Rocks results and the news that a further £3b is going into the equity of the business has set alarm bells ringing today.

The Company announced worse than predicted losses of £585m for the first half of the year,worse because much of this related not to one off charges connected to the restructuring of the business but to cover an ever increasing bad debt provision.

This make the government's promises that the initial loan was secured on a strong asset book look even more shallow.In a away this as the trade off for paying back more than £9b of the initial loan.To achieve this the Rock encouraged customers that could leave to take their business elsewhere.

Unfortunately leaving themselves with the bottom end of the business and a particularly its so called together mortgages which encouraged householders to take out loans in excess of 100% of their property.

According to Vince Cable some £6b of loans are now classed as unsecured.

It seems that the government's intention to re float the Rock is now a long way off

Osbourne's performance show Tories have a long way to go

You would expect that the current controversy over Northern Rock would be helping the Conservative party up the opinion polls.No doubt we will be getting the latest returns shortly.

However their performance during the crisis has not shown any basis for trusting them in the management of the economy.Something that they need to do if they are to win the next election.

In fact, the dour Scottish accountant in Gordon Brown and his sidekick,Alistair Darling have come across as people that,despite being dull,you would trust to look after your money.

George Osbourne, on the other hand, performs like a footballer who presented with an open goal has just hit the crossbar.

Simon Heffer writing in the Telegraph today,is quite critical of his performance

In the face of sheer dishonesty from Mr Darling, in refusing to admit he was following a policy against which he had earlier set his face like flint, all Mr Osborne could supply was hysteria and name-calling.
There was a fundamental failure, too, to start from where we are. The bank shouldn't have been nationalised, but it has been; and Mr Osborne's desire on Monday for it not to take any new business is hardly going to help it be sold on, even if that were ever possible.
That, coupled with the pointless call for Mr Darling to be sacked, suggested naivety and vacuity. Being an opposition is not just about pointing the finger. If you aspire to prove you are fit to govern, you must also convince the wider world that, faced with such a crisis of this size, you could deal with it well.

Furthermore Simon beleives that this shows the party has a long way to go before it is going to be in a position to win the election

The complacency, the smugness, the old clichés look empty now. How many people believe the Tories would have made a better fist of Northern Rock than the hapless Alistair Darling? How many believe they would tackle the real problems facing our bloated economy and our nation any more effectively than Labour does? Not nearly enough to win them an election, I fear.

Now the vultures are circling the Treasury

As the Prime Minister prepares for his monthly press conference,the pressure over the Nationalistion of Northern Rock continues unabated.

Nick Robinson has joined the fray this morning,asking

has Alistair Darling announced a policy that he has previously accepted will "lead to a slow lingering death for the jobs of the Northern Rock workers, its assets and Britain's reputation as a major financial services centre with... the chancellor cast in the role of undertaker"?

Iain Dale points out that

Labour Ministers are understandably keen to avoid comparisons between the Northern Rock fiasco and Black Wednesday. Yes, there is a very crucial difference. Trying to keep Sterling within the ERM cost the taxpayer £10 billion at the most, whereas the public liability for Northern Rock is eleven times as much

and thinks that the Time is right for David Cameron to table a vote of no confidence.

John Redwood asks

What due diligence will the Chancellor do if any before committing the taxpayer to all these liabilities? What law suits if any is he anticipating from shareholders? What will be the cost of compensation to shareholders? What will his policy be on remuneration for his new state employees and how will that fit in with other public sector remuneration

James Forsyth says

Perhaps, the greatest political danger for the government from yesterday’s nationalisation of Northern Rock is that it fits so neatly into the narrative of a government that is incapable of making a decision

And it is probably best if he doesn't open the newspapers,

yesterday's announcement, far from ending this fiasco, threatened to push the Gordon Brown even deeper in the hole he has dug

Anatole Kaletsky in the Times

It's that D for "dither" word again, coupled with much concern about "we". Enter the chancellor, announcing what "we have decided" and might, indeed, have decided five months ago. That won't do much to help headlines like "Darling must go, say voters",

,Peter Preston on Comment is Free

The Sun has sympathy for Gordon but not for Alistair

No government should make a habit of propping up failed institutions with taxpayers’ cash.
But no private firm wanted to pay the right price. So there was no option but to take the bank into temporary public ownership.
It was the lesser of two evils, and the only sensible way forward.
Gordon Brown has been brave enough to get us out of the mess his Chancellor got us into

. and the Mirror

Thankfully, his experience stood him in good stead and he did the right thing by nationalising Northern Rock.
Arguably, the Chancellor could have acted sooner but he was under an obligation to the taxpayer to hear out private bidders.
Ultimately, he has done the right thing by taking the company under government control to ensure the best deal for Britain.

Perhaps though the last word to Guido who points out some harsh economic realities

Now we have a situation where £100 billion of taxpayer's money is being bet on the UK property market as it teeters on the edge. Gordon Brown repeats the mantra that the public's money is secured against the bank's assets. The bank's assets are what exactly? The equity in mortgagees homes belongs not to the bank, it belongs to the homeowners.

Northern Rock privatised-

Could this be the climbdown of the year?

Alistair Darling's announcement that the Government is to privatize Northern rock after realising that Virgin and the management bid will require a great deal of subsidy from the government.

Critics will no doubt ask the obvious question.Why was this not done in the first place and how will the government deal with the difficult decisions it will now have to take.

Peter Doskin over at Coffee house describes it as

"yet another case of Government dithering, and one of the most monumental yet."

George Osbourne over at BBC online says

After months of dither and delay we have ended up with this catastrophic decision. We now have the situation where the government will be making decisions on whether or not to foreclose on people's loans in a falling housing market."

The pepole that will lose out the most are the Northern Rock shareholders who may well see their shareholdings become worthless.