Branson writes letter to Northern Rock customers as its future looks more certain
27 November 2007
Richard Branson has written a letter to customers of the stricken bank Northern Rock, published in today's news, to assure them that he has "plans for strengthening Northern Rock" and that he hopes they will continue to be a "valued customer" of "our new and exciting bank".
Branson's company Virgin has outmanoeuvred some of the word's most respected investment companies and emerged as a favourite for rescuing the struggling bank, named by the Government and Northern Rock itself as a favoured bidder because it offers to repay the Bank of England loan, currently more than £25 billion, as quickly as possible, which is the best option for the taxpayer.
As part of his plans for "strengthening Northern Rock" outlined in the letter, Mr Branson pledges to protect the savings of Northern Rock's customers, stop the business being broken up, save thousands of jobs, and continue to support the Northern Rock's charitable foundation.
Shareholders, however, are reacting with criticism to the deal that will leave them out of pocket and having to dig deep for another £650 million investment. As part of the deal, shareholders will be offered a 45 per cent stake at 25p a share, and Virgin will hold 55 per cent. In the event that shareholders decide it would take to long to see a return on such an investment and refuse the offer, Virgin will buy all the extra shares itself, and shareholders will be left with just six per cent of the bank.
RAB Capital, which owns a 6.7 per cent stake, has spoken out, saying that Virgin's proposal does not reflect the true value of Northern Rock, and that the board should hold out for a better offer. Some are questioning Mr Branson's qualifications for rescuing the struggling mortgage provider, and shareholders are still hopeful that another bidder will come in with a better offer.
Other than the shareholders, Virgin also faces opposition from politicians concerned with the expense to the taxpayer by saddling it with billions of pounds worth of liabilities until they are eventually paid off by the successful bidder, which could take several years. Branson stands to make up to £10 million a year by allowing Northern Rock to use the Virgin brand as part of a 20 year deal that would mean Virgin would be paid a percentage of Northern Rock's revenues.
City analysts believe that shareholders will get more with the Virgin bid that they would through the bank being nationalised or going into insolvency. Northern Rock's chairman, Bryan Sanderson, expressed sympathy for the shareholders, but urged them to see that the Virgin bid “is very good news for Northern Rock".
And Richard Farr Director of the Association of Mortgage Intermediaries (AMI) commented: "There have been lots of positive comments about an early settlement being good for stability and the future of the market with which we agree. Northern Rock has historically been a major intermediary lender.
"We trust Virgin will stay as committed to the intermediary market. Should the takeover of Northern Rock by the Virgin consortium be a success, we would be delighted to work with the new owners in order to educate them on the essential role brokers play within the industry."
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