Northern Rock: Who will win the race?

The year has gotten off to a great start with many rumours flying about that the Government is looking to offload Northern Rock ASAP. With the election looming it would be a real coup for Mr Brown to get rid of the albatross which is Northern Rock. The sell off will take the usual format, in that the deposits and any low risk mortgage assets will be sold, while the Government retains the more toxic end of the stick.

There are two financial institutions who have more than a passing interest in the purchase of the Northern Rock assets. There is also a third contender BBVA a Spanish bank who are said to be interested in following Santander into the British banking industry but it is not clear how serious their interest is.

Firstly we have Virgin Money, they missed out first time around and it was probably just as well for them as the financial crisis deepened and widened. I suspect now that their bid will be revised down the way and a lot closer to the real value of the company. The big motivation for Virgin would be that they could finally enter the mortgage market after more than 6 years of talking about it.

Virgin Money has been particularly active in the last week or two, the acquisition of the little known bank, Church House Trust bank. There has also been a well reported meeting between Richard Branson and Blackstone, allegedly about financing a bid for Northern Rock. Virgin Money has also popped up in the Best Buy Tables for unsecured personal loans. They also continue to dominate the Best Buy Tables for Credit Card Balance Transfer Deals where they are an ever present at the top of the charts.

The other contender is National Australia Group (NAG) who own two very well known British banking brands in Yorkshire Bank and the Clydesdale Bank. They are in good shape financially as they stuck to a conservative risk policy during the boom times and resisted the temptation to buy in readymade growth.

Yorkshire Bank and the Clydesdale Bank have consistently been in a number of mortgage best buys charts over the last 12 months. Like other banks in a similar situation i.e. HSBC, there is no doubt NAG have been cherry picking low risk customers and adding to their asset base at good margins.


It is also believed that NAG are set to benefit from the forthcoming branch sell off that was triggered by the European Competition ruling on Lloyds TSB takeover of HBOS as they look to buy up branches that Lloyds Banking Group have to sell. However, they won’t get it all their own way as Tesco is believed to be interested in the branches as well as they gear up to launch the Tesco Money Shop.

I personally think there is a case to support either of the potential bidders, Virgin as they could neutralise the bad connotations the words Northern Rock conjure up with their well known and well respected brand. While NAG bring a lot to the table with their good governance, past experience, existing processes and back office infrastructure.

The one thing I am 100% certain about is that both the Government and the British Tax payer want rid, sooner rather than later. I suspect that this issue will all be resolved no later than the end of April 2010.