The Government is to choose between the two main contenders for the Northern Rock takeover – Virgin and JC Flowers – unless a high street bank decides to put in a last-minute bid.
Having ploughed £13 billion into the company in the form of emergency funding, the Government will now weigh up the pros and cons of the two consortiums that have shown interest in acquiring the struggling bank.
The Virgin brand is better known in the UK, and the company will probably change the bank’s name to Virgin Money should a takeover ensue. It is hoped this would help restore some consumer confidence in savings investments. Virgin has also pledged to continue providing funding for the Newcastle-based lender’s charitable arm, Northern Rock Foundation.
“I believe that if we’re successful we will be able to build an exciting new banking alternative for everyone in the UK,” said Sir Richard Branson in a letter to Virgin Money customers.
However, Virgin’s credentials in the financial sector have been brought into question, as its financial services have not been as successful as some of its other ventures. Furthermore, the way the company will finance the deal is currently unknown.
Meanwhile, private equity firm JC Flowers is said to have set aside around £15 billion to fund the move and is likely to offer some if not the full funding to the foundation.
However, while Virgin has agreed to keep the company as a publicly listed group, JC Flowers would prefer to privatise, and this could provoke serious indignation.
Jayne-Anne Gadhia, who will take charge of the company if the Virgin-led consortium is chosen, told the Financial Times it would be run “much more like a building society”, reducing its lending business. It would focus more on online savings accounts and mortgages.
“We are determined to preserve one of the last remaining truly independent UK-owned competitive forces in banking, mortgages and other financial services,” said Sir Richard.
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