Northern Rock sale: frequently asked questions

17 November 2011

Why have you decided to sell Northern Rock?
The Government claimed it supports mutuals - why not remutualise Northern Rock Plc?
Are you also looking at selling Royal Bank of Scotland (RBS) and Lloyds Banking Group (LBG)?
Do you think this has a good impact on competition?
What are the next steps?
What does this mean for the North East economy?
Will you publish the reports and documents related to the bidding process?

Q: Why have you decided to sell Northern Rock?

HM Treasury and UK Financial Investments Ltd (UKFI) started working on disposal options for Northern Rock Plc in March 2011. The Chancellor announced his intention to pursue the sale option at the Mansion House on 15 June 2011. This was not an overnight decision.

HM Treasury, UKFI and independent advisors considered all the options for disposal, including retention and mutualisation. Analysis of all the options showed that this deal at this time represents the best value for the taxpayer. The sale is good for the economy of the North East and for jobs. Further, this represents an important first step in returning public sector stakes in banks to the private sector.

The deal completed on 1 January 2012, following European Commission (EC) merger clearance and Financial Services Authority (FSA) approval.

Q: The Government claimed it supports mutuals - why not remutualise Northern Rock Plc?

The Government is committed to promoting mutuals and is implementing a number of legislative reforms to enable financial mutuals greater flexibility to develop and expand, thereby promoting mutual ownership in financial services.

The full range of options for the disposal of Northern Rock Plc were objectively evaluated by UKFI and independent advisors, including returning Northern Rock Plc to the mutual sector by combining with an existing mutual or through a standalone remutualisation of the company. In conducting analysis into mutualisation, HM Treasury and UKFI reviewed relevant literature and studies and met with experts from the mutuals sector.

Mutuals, like all other financial institutions, were welcome to bid for Northern Rock Plc. However, no bids from mutuals were received during the final round of the bidding process.

Q: Are you also looking at selling Royal Bank of Scotland (RBS) and Lloyds Banking Group (LBG)?

Northern Rock Plc and RBS/LBG cannot be compared. Northern Rock Plc is a small retail bank that is wholly owned by the Government. RBS/LGB are much larger banks with investment banking operations. Further, RBS/LBG are publicly listed companies. The Government holds 82% in economic ownership and 67% in voting rights in RBS. The Government holds 40% in economic ownership in LBG.

UKFI’s stated objective is to dispose of the Government’s investments in the banking sector in a way that secures the best value for the taxpayer. UKFI continues to look at the full range of options for divestment, and will make recommendations over time based on market conditions.

The decision will ultimately be one that the Chancellor makes, and his priority is maximising value for the taxpayer. Because any decisions need to be taken with regard to changing economic and market conditions, UKFI does not think it is possible to state goals, such as price or time that would drive sales of the Government’s shares.

Q: Do you think this has a good impact on competition?

The sale of Northern Rock Plc to Virgin Money is establishing a new name on the high street and current Northern Rock Plc customers are seeing an increase in the number of banking products available to them.

Virgin Money also has plans to improve customer services by retraining staff and improving IT systems. Furthermore, Virgin is well known for their ideas for growth and innovation, and is confident that this will help improve diversity in the banking sector.

Q: What are the next steps?

For current Northern Rock customers, it is business as usual and they will not need to take any action as a result of the announcement. Northern Rock customers are benefitting from the sale through an increase in the number of banking products available to them, including Virgin Money’s credit cards and investment and insurance products.

The deal completed on 1 January 2012, following European Commission (EC) merger clearance and Financial Services Authority (FSA) approval. The EC and FSA have been kept informed throughout the process.

Q: What does this mean for the North East economy?

Virgin Money has committed to:

making no further compulsory redundancies beyond those already announced for the next three years;
moving their operational headquarters for the new, combined business to Newcastle;
working with the Northern Rock foundation; and
retain the total number of existing branches, with the highest concentration here in the North East.

Q: Will you publish the reports and documents related to the bidding process?

Deutsche Bank acted as independent advisor to UKFI and Northern Rock Plc. The Government is currently considering what information can be published without damaging the commercial interests of the involved parties. . However, the decision to sell Northern Rock Plc to Virgin Money is in line with the advice and recommendations of both UKFI and independent financial advisors as being in the best interests of taxpayers.