Northern Rock Sold To Virgin

Taking a short respite from international news of doom and gloom (bond yields in Spain at 7%, Germany and France fall out over role of ECB etc) it has been announced that Virgin will buy Northern Rock plc (the non toxic part of Northern Rock) for around £750M now, with a possible further £280M over the next few years.

Northern Rock plc will be rebranded as Virgin Money, which has promised not to make anyone compulsorily redundant over the next 3 years.

Taxpayers have put around £1.4BN into Northern Rock plc. Hence the loss is between £400M to £650M.

The "bad bank" part of Northern Rock is estimated to contain losses of up to £21BN.

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Virgin Enters Retail Banking

Virgin Money today acquired Church House Trust (a regional bank) for just over £12M, with a plan to inject a further £37M.

This acquisition offers Virgin the opportunity to expand into retail banking, enabling it to offer mortgages and deposit accounts.

It is expected that Virgin Money will change its name to Virgin Bank during 2010.

However, this is not the first time the Virgin have been involved in the mortgage business. Virgin once had a JV with the Royal Bank of Scotland (RBS), and offered the "Virgin One Account" mortgage. In due course RBS took 100% ownership of this.

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Virgin Backtracks

Now that the finishing post is in site, in the race to take over the corpse of Northern Wreck, those organisations that expressed a very public interest in making a bid are now having to get ready to put their money where their mouths are.

Monday saw Olivant pull out, today it is reported that Virgin are backtracking on a promise not to cut jobs if it succeeds in its bid.

Jayne-Anne Gadhia, the head of Virgin Money, said:

"We cannot continue to make the promise that there will be no redundancies, but we would aim very much to minimise any reductions."

When Virgin originally very publicly announced it was interested in bidding for Northern Wreck, last October, it said that it would keep Northern Rock operating in its current form and did not anticipate any job losses.

Needless to say the unions are not best pleased with this volte face. Unite said that it will meet with the company on Thursday to discuss the details of their bid.

Graham Goddard, Unite deputy general secretary, said:

"Unite will oppose any compulsory redundancies."

That's all very nice, but how exactly do they intend to oppose the redundancies without destroying what remains of the corpse of the bank?

The BBC estimate that approximately 1,000 (1 in 6) members of Northern Wreck's staff will lose their jobs.

It seems that the issue that has caused this volte face by Virgin is the insistence by the government that the loans made by the Bank of England to Northern Rock must be repaid in three years, rather than five years as previously expected.

Money has the rather annoying habit of really focussing the mind!

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One Down, Two To Go

Luqman Arnold, the former boss of Abbey, has pulled out of the bidding for the corpse of Northern Rock. This gives Chancellor Alistair Darling something of a headache, as he and Gordon Brown are desperate to avoid nationalising the Wreck.

Unfortunately for the government there are only two bidders left, thus reducing the chances of a viable solution that is favourable to the Treasury and taxpayer.

Sir Richard Branson's Virgin Group and Northern Rock's management team are now the only players in the game, thus reducing the ability of the Treasury to call the shots.

Needless to say, Darling is trying to twist Arnold's arm to return to the table; and he may be offering Arnold some extra concessions.

Perhaps that is exactly why theatrically Arnold pulled out at the eleventh hour?

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D Day for Northern Wreck

Today, 16:00 to be precise, marks the deadline imposed by the government for bids to be placed for the beleaguered Northern Rock.

It seems that, despite being very pally with the Prime Minister, Richard Branson's Virgin is losing ground in the race to carve up the corpse of the once proud bank.

Virgin's known rivals are Paul Thompson, the former chief executive of insurer Resolution, who is leading a proposal to keep much of Northern Rock's management in place and ex-Abbey boss Luqman Arnold.

Although the deadline for bids is 16:00 today, the Tripartite Authorities, advised by Goldman Sachs, may take until the end of the month to pick a bidder.

The Government has told shareholders that they will not be allowed to determine the decision, but it is likely Goldman and the Treasury will take their views into account.

Failure to complete on a satisfactory deal will mean the nationalisation of Northern Rock.

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Northern Wreck

In a clear sign that the shares of Northern Wreck are nothing more than the plaything of speculators, and the last haven for those with zero risk aversion, the shares rose by 44% this morning to over 90p on news that there may be a chance for a private takeover of the bank.

The Treasury have invited new bidders to come forward, and have unveiled a "plan" to keep the corpse breathing.

The government plans to turn the £25BN loaned by the Bank of England into bonds, that will be sold to investors and guaranteed by the Treasury.

Bidders will have until February 4th to submit their full proposals.

However, the Treasury insists that it benefits from any increase in Northern Rock's share price, and has a say over the payment of possible dividends as well as a "range of other provisions appropriate for the provision of financial support of the kind contemplated."

The risk of any mortgage defaults will remain with the taxpayer.

Should negotiations with a private buyer fail, the Treasury said:

"the Government would bring forward legislation which would empower the Treasury, by order, to take Northern Rock into temporary public ownership."

The question that the shareholders needs to ask themselves is this:

Do you seriously expect to receive more than pennies for the shares, even if a private bidder comes forward and obtains the requisite financing?

The risk of nationalisation is still great, and to assume otherwise is utter madness.

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Northern Wreck

Shares in Northern Rock have plunged to an all time low today to 54p (they traded less than a year ago at £12), on the not unexpected news that the government is close to nationalising the Wreck.

The previous board members of Northern Wreck must be feeling really proud of themselves for destroying this bank!

Quite why the fall in price should come as a surprise to shareholders baffles me. Had they bothered to read this column they would have seen that I have been warning for sometime now that the shares are nothing more than the plaything of the speculators, and will end up in the rubbish bin in the same way as Marconi.

Virgin and Olivant, two companies trying to arrange a deal, are struggling to arrange funding.

Yesterday's extraordinary general meeting, was a damp squib and a waste of time. The board only lost one minor resolution brought by rebel shareholders.

Brown meanwhile kicked any remaining support from under the share price by saying:

"There are a number of companies in the financial private sector that have expressed an interest but public ownership - later to move it back into the private sector - is one of the options. The reason we've got to look at everything ... is that the stability of the British economy is the issue."

Meaning that he will do whatever is necessary to ensure this mess is sorted out ASAP; ie he will nationalise it within weeks.

It is unclear how much would be paid to shareholders in the event of nationalisation. However, the lower the share price the less they will be paid; it will be pennies not pounds.

This is a slow motion car crash that the shareholders could see, yet refused to acknowledge.

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Virgin Takes a Punt on Northern Rock

Sir Richard Branson's Virgin group is trying to take a punt on the corpse of Northern Rock. Virgin has put together a consortium to take control of Northern Rock.

It is in the public domain that there are two other bidders for the Rock, private equity firm JC Flowers and hedge fund Cerberus.

Virgin's consortium includes AIG, the insurance company, and the London hedge fund Toscafund which is headed by the former Royal Bank of Scotland chairman Sir George Mathewson.

In order to boost its credibility, wrt being able to pull off the bid, the consortium are looking for a well respected banking veteran who could take control of the Northern Rock board and reassure regulators, politicians and the financial markets.

The Virgin wishlist, according to the Guardian, includes Sir Brian Pitman and Sir Peter Ellwood ex ceos of Lloyds TSB, former Bank of Scotland chief Sir Peter Burt and HBOS chief executive James Crosby.

The Virgin consortium says that it will inject around £1BN in cash into Northern Rock, together with the Virgin Money business (estimated to be worth £200M).

The consortium would be issued new shares, at a deep discount to the current price, giving it around 50% of the bank. The Northern Rock name would be killed off and the new bank would be called Virgin Money.

JC Flowers and Cerberus have made it clear that current shareholders would receive very little in the event of a takeover.

Given the public offers on the table, and the fact that the sharehodlers are clearly not going to receive very much, it is very surprising to see how the shares have rallied last week. This morning they have fallen by 27% to 199p.

However, anyone currently holding shares in this company must face the reality that the current price may now be incredibly volatile and not necessarily reflect the true "value" of the company; as Northern Rock is now the plaything of the speculators.

As I have already noted several times before, this share now strongly resembles the dying days of Marconi's listing on the FTSE.

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