Northern Rock repays some of BoE loan and Virgin picks up its game

18 January 2008 / by Rachael Stiles
Northern Rock has taken a turn for the better and repaid £2.5 billion of its £26 billion loan from the Bank of England, which bodes well for its future and potential takeover by Virgin.

The bank was able to repay some of the loan from the sale of a chunk of loans last week to JP Morgan, so its debt to the taxpayer now stands at £24 billion. However, its fate is still hanging in the balance while a decision is sought.

Sir Richard Branson has said that a report from Northern Rock's adviser Goldman Sachs will be released in the next few days, outlining how Northern Rock will be financed. Branson's Virgin Group remains the frontrunner in a take over race with Northern Rock's other suitor, Olivant.

In order to further secure his poll position for the bank, the billionaire has upped his game as nationalisation has become increasingly likely, lining up a newly enhanced team which would include former managing director of Alliance & Leicester, Peter McNamara, as the executive responsible for risk management.

The Prime Minister Gordon Brown has committed himself to exhausting all other options before turning to the last resort of nationalisation, which would be the worst outcome for all parties, leaving shareholders with nothing and the taxpayer out of pocket for the £24 billion loan to the Bank of England, and a further £29 billion in guaranteed deposits. The Prime Minister has admitted that in the current market conditions nationalisation might be the only outcome for the bank, which was hit by the American sub prime mortgage crisis last summer.

Northern Rock will not be the only casualty of the subsequent credit crisis, which will reportedly claim a total loss of £250 billion, according to the chairman of America's Federal Reserve, Ben Bernanke, as a direct result of the housing crisis, wherein millions of American families stand to lose their homes as they fail to keep up with repayments.

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