What the sale of Northern Rock means for you

Northern Rock is no longer in public ownership. But have we got a good deal for the bank?

It’s taken him a few goes, but at long last Richard Branson has got his hands on Northern Rock. The bank, which in many ways sparked the credit crunch in the UK, is now a part of the Virgin Money group, after Virgin forked out £747 million for the bank.

It’s been a long time coming. I remember back in early 2007 speaking to analysts on what felt like a weekly basis about the likelihood of Branson getting his hands on Northern Rock. And that was before the run on the bank – the first on a British bank in 150 years – kicked off later that year, at which point Branson had another go at buying Northern Rock.

It ended up in public ownership instead, so this sale has implications for all of us as taxpayers, irrespective of whether we bank with Northern Rock. Let’s take a look at the deal, and what it means.

Good banks and bad banks

The first thing to note is that this deal is not for all of Northern Rock. The bank was split in two back in January 2010, leaving a so-called good bank and bad bank. The bad bank encompasses the ‘toxic’ assets of Northern Rock, so things like much of the 125% loan-to-value Together mortgage book.

The bad bank, or Northern Rock Asset Management to give it its actual title, remains in Government hands. Virgin has only bought the good stuff.

A £1 billion deal

The deal, which should be completed in January, consists of an initial payment of £747 million, with a further £50 million to follow in the six months afterwards.

That’s just the cash side of things. A further £150 million will be paid in the form of Tier 1 Capital Notes, and should Northern Rock be sold again or listed on the Stock Exchange in the next five years, there will be yet another payment, this time of between £50 million and £80 million.

In total, Virgin and the government claim that this deal could see the taxpayer receive more than £1 billion.

The trouble is, the taxpayer has so far injected the best part of £1.4 billion into the bank, so we are actually out of pocket to the tune of £400 million. Not the best of news for taxpayers, after we were told that in all likelihood we would profit from the bank’s nationalisation four years ago.

Current customers

There’s better news if you’re already a current customer of Northern Rock, as it should be a case of business as usual, with no real discernable change.

If you have a saving account with the bank, as my son does in the shape of the Little Rock account, then your account will simply be transferred over to Virgin. This is also the case for mortgage-holders, with the £14 billion mortgage book moving over.

If anything, dealing with the bank should get a little easier as not only will the existing 45 branches be retained, but Virgin wants to extend that number.

New customers

Northern Rock has offered some pretty decent mortgages for a while now, particularly in the buy-to-let market. Virgin has long wanted to establish a competitive presence in the mortgage world, so borrowers should be able to look forward to another lender keen to do business.

This is also the case with the savings market, where Northern Rock has been a steady performer. With Virgin’s backing, we should see more competition, and therefore better rates. Frankly, that can’t come soon enough!

However, one interesting area is current accounts. Virgin has made clear that the combined business will launch strongly into current accounts in 2013, which will also add some welcome competition to an area of the market which could do with a little more innovation.

The brand

Northern Rock as a brand will be on the way out, it appears, with the new combined business operating under the Virgin Money brand. Perhaps, given the way the name Northern Rock is so associated with the troubles of the past few years, that's not such a bad thing.