James Moore: Treasury lucked out with Northern Rock and now might have to repeat the fluke

Outlook With the economy hitting the buffers the Treasury could use some good news. Today no less than the National Audit Office appears to offer some with the publication of its report into the Treasury's management of Northern Rock. Appears to.

Ministers took a fair amount of flak for crystallising a £400m loss by rushing to sell the "good" part of the bank (deposits and low-risk mortgages) to Virgin Money.

But the NAO concludes that this was indeed the most sensible and low-risk option and that the price was a good one when set against the sort of valuations the market was (and still is) putting on privately owned banks.

This holds true, in the NAO's view, even though Virgin was able to engineer the transaction so that it was able to part pay for Northern Rock by using cash supplied by, erm, Northern Rock.

Bankers like to refer to this sort of thing as "financial engineering" but there is a more colourful Anglo-Saxon term that would be equally appropriate.

The report also says it expects the taxpayer to ultimately recover all of the state funds injected into the bank, less a notional £2bn. This reflects the fact the returns from the "bad", or perhaps "less good" given things have improved, part of the bank that remains in state hands won't be what the private sector would demand from such an organisation.

However, given some of the gunk remaining in that bank, that too is something of a result. As the NAO argues, £2bn isn't a particularly high price to pay to avoid the chaos that appeared to be looming when high streets up and down the country were filled with people queuing to pull their money out of an institution that looked primed to blow up.

Drill down into the guts of the report, however, and you can't help but notice the sting in the tail. It says the Treasury engineered the split of Northern Rock on the back of a wildly optimistic business plan presented to it by Northern Rock's management. There was no due diligence done before the decision was made. Nor was it revisited afterwards.

So the fact that things have all worked out rather better than might have been feared is basically because the Treasury got lucky. The current government will probably point out that this cavalier decision making was a characteristic of the last lot.

It is still, though, faced with the task of getting value for money from the less-good bank. Which will depend "on the effective management of the larger pool of assets and liabilities remaining in public ownership" in said bank.

In other words, the taxpayer might just have to hope that the present administration can hit a second 21 at the financial blackjack table.