Virgin secures £500m for RBS bid
Virgin Money has secured up to £500 million of extra financial firepower from new billionaire stakeholder Wilbur Ross as part of its bid to snap up hundreds of Royal Bank of Scotland (RBS) branches.
The new kid on the financial block, which this week tables its initial bid for the 300-plus RBS branch network, is one of a number of potential suitors which also include Spain's Santander, BBVA Group, National Australia Bank and private equity firms such as JC Flowers.
Teaming up with 72-year-old Ross - a US corporate turnaround specialist who has stumped up £100 million for a 21% equity stake in the business - will put Virgin Money on a sounder financial footing against its bid rivals.
Ross has pledged up to £500 million of additional cash to fund acquisitions, which could include the nationalised assets being sold off by Northern Rock and Lloyds Banking Group under EU competition rules if its initial play for RBS's branches fails.
"The UK banking system is clearly going to go through a big overhaul," Ross said. "We think that, given the management team and the reputation that Virgin Money has built up, they are ideally positioned to be one of the big winners."
The RBS branch network, which is being sold under the Williams & Glyn's brand, is expected to fetch anything up to £2 billon when it is offloaded.
The European Commission last year ruled the bank needs to sell of 318 of its branches to address competition concerns after it was bailed out by the UK government.
Today (6 April) is the first deadline for bidders to outline the structure of their offers, with a second round expected in around six weeks' time.
Larger bidders such as Santander will have more financial clout behind their offers, though Virgin Money could well be looked upon favourably because of its status as a new player opening up the retail banking market to more competition.
New non-executive director unveiled
James Lockhart is the man tasked with doing billionaire Wilbur Ross's bidding on the Virgin Money board, where he is to become a non-executive director.
Lockhart is currently vice chairman of investment firm WL Ross & Co and has spent the bulk of his career in finance, though he has been under the spotlight in recent years for quite different reasons.
He began his career over 40 years ago in the Navy, where he became an officer on the deck of a nuclear ballistic submarine, and has since worked in various roles in investment banking, insurance and risk management.
Lockhart, who went to school and university with ex-US president George W. Bush, then spent three years as director of the Federal Housing Finance Agency (FHFA) - the US agency that seized Fannie Mae and Freddie Mac in the depths of the crisis - before leaving to join WL Ross last year.
Though he was instrumental in pushing through the state rescue of both institutions, Lockhart has since admitted that the FHFA could have done more in retrospect to stem the tide of sub-prime lending that would prove to be their undoing.
He was called to testify on the rescue of Fannie and Freddie before the Senate committee on banking, housing and urban affairs in September 2008.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.