(Updates with Osborne comment in third paragraph.)
Nov. 17 (Bloomberg) -- Billionaire Richard Branson’s Virgin Money Holdings U.K. Ltd. is to buy Northern Rock Plc for 747 million pounds ($1.2 billion), four years after it suffered the first run on a British bank in more than a century.
The government will also receive 50 million pounds in cash within six months, 150 million pounds of Tier 1 capital notes and as much as a further 80 million pounds in cash in the next five years subject to a profitable initial public offering, U.K. Financial Investments said in a statement today. That would bring the total to as much as 1.03 billion pounds.
The sale is the first by the government since it bailed out four British lenders including Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc following the 2008 credit crisis. Chancellor of the Exchequer George Osborne, seeking to plug the budget deficit, said today the sale is the first step to reducing the government’s holdings in the industry.
“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,” Osborne said in an e-mailed statement. “It represents value for money, will increase choice on the high street for customers, and safeguards jobs in the North East.”
Virgin Money pledged to move its headquarters to Newcastle, Northern Rock’s base, and not to impose any compulsory redundancies in the three years following the purchase. It will maintain the same number of branches. The bank has cut about 2,300 jobs since nationalization, reducing total staff numbers to about 4,000.
In January 2010, Northern Rock Plc, the consumer bank, separated from Northern Rock Asset Management Plc, which is closed to new customers. At the same time, the government injected 1.4 billion pounds of capital into the unit.
U.S. private-equity firm JC Flowers & Co. and NBNK Investments Plc, run by Peter Levene, also submitted bids for the bank which the U.K. government took over in February 2008.
The sale “creates a new retail banking competitor with four million customers, bringing additional choice to the U.K. market and securing jobs,” said Keith Morgan, head of Wholly Owned Investments at UKFI, the government agency managing its bank stakes. “The deal returns Northern Rock to the private sector and maximizes value for taxpayers.”
--Editors: Francis Harris, Edward Evans
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