Who will buy Northern Rock?

4 January 2010

The race to snap up the good assets of Northern Rock is heating up, with Virgin Money and National Australia Bank (NAB) emerging as the frontrunners.

The parent of both Clydesdale and Yorkshire banks, NAB has reportedly held meetings with potential advisers (including Lazard, Citigroup, Credit Suisse and Morgan Stanley) ahead of a potential bid for Northern Rock's savings and mortgage business.

Meanwhile, Virgin Money - which tried to buy Northern Rock before it was taken into government control in early 2008 - is looking into a £50 million deal to buy a small British bank in the coming months.

Sir Richard Branson’s financial arm has applied to the Financial Services Authority (FSA) for the banking licence it needs to pursue its retail banking ambitions. This is expected to come through in the next three months.

Northern Rock has now been formally split into a good bank and a bad bank following its restructure last year.

The new savings and mortgage bank - called Northern Rock - received FSA authorisation on 1 January. It holds savings balances of around £19 billion and has around £10 billion of low-risk residential mortgages.

The 'bad' bank, named Northern Rock (Asset Management) and chaired by Bradford & Bingley's Richard Pym, has a residential mortgage book of about £50 billion and £4.5 billion of unsecured personal loans. This will remain in government hands and will no longer offer new mortgages.

Gary Hoffman, chief executive of Northern Rock, says: "I am pleased to announce that we have successfully completed the legal and capital restructure of the business. This helps to build a stronger future and delivers value to taxpayers.”

The government has been keen to introduce new players into the banking sector to ensure greater competition levels and more choice for consumers.

NAB is one of the biggest financial institutions in Australia with 8.3 million consumer and business clients across 10 countries. It could also look to increase its UK presence by bidding for the branches being sold off by RBS and Lloyds in return for the state aid it received.

However, it faces stiff competition from outside its traditional circle of rivals with the likes of Tesco and private equity firms also attracted by the prospect of picking up distressed financial assets. 

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