Northern Rock Nationalisation

Northern Rock Nationalisation

Due to the credit crunch in 2008, a total of £1.4billion of taxpayer money was spent by the Government into the company Northern Rock in order to save the struggling bank. Following this nationalisation, the bank was then split into two on the 1st of January 2010. One half was named as the bank Northern Rock plc which was the 'good' part of the bank for savings and mortgages. 'Bidders for Northern Rock would land a company with about £19 billion in retail savings and some £10 billion in residential mortgages.' (Williams, 2010) This part was to be sold to a private investor whereas the second half of the bank was to remain in public ownership. The second part, seen as the 'bad' half of Northern Rock, contains the more 'toxic' loans and was renamed Northern Rock Asset Management with around £50billion in mortgages (90% of these not in arrears) and £.4.5billion in unsecured loans. (Williams, 2010)

Who are the Investors?

After much speculation and rumoured bids from various sources such as Yorkshire Building Society and NBNK, on November 11th 2011 it was finalised that Virgin boss Richard Branson would purchase Northern Rock plc. The deal would consist of £747 million cash and £150 million in convertible debt with Virgin Money Investing £50 million, a similar sum from Stanhope Investments and £260 million from Wilbur Ross. 'A further sum of up to £130m will be payable to the government depending on performance and the timing of any resale of the business.' (Jenkins and Pickard, 2011). On top of these figures Virgin extracted a total of £400 million of investment money from Northern Rocks and its own capital excess. The merger of these two banking groups combines Virgin Money's 3 million members to Northern Rock's 1 million savers and borrowers along with the 75 high street branches it would take over.

Wilbur Ross

Billionaire Wilbur Ross, who is investing £260 million into the takeover deal, may have big plans in the future for the newly merged company but back in America he is known as a 'vulture investor'. This is because he is very well known for investing in struggling companies; he recently invested in The Royal Bank of Ireland putting in a 33% stake among other investors to stop the bank from falling into full state ownership (Pickard, 2011). Upon completion of the takeover he became the new co-owner with a 44% stake of the merged Northern Rock and Virgin Money. He already had a 21% stake in Virgin Money from a previous £100 million investment. If he can turn around the banks like his future plans aim to, then more services including internet banking will be introduced theoretically creating more jobs for the public.