£11bn profit from Northern Rock
Tuesday 28 February 2012
Northern Rock's period of public ownership should generate a profit of up to £11 billion for the taxpayer over the next 10 to 15 years, the body responsible for the Government's bank investments said today.
Just under £37 billion was used in bailing out the two companies that comprise the former Northern Rock, but over time UKFI expects the return of cash will be between £46 billion and £48 billion.
This includes the recent sale of Northern Rock to Virgin Money in a deal that could potentially value the business at £1 billion, as well as repayments and the winding down of Northern Rock Asset Management, which houses a portfolio of mortgages and unsecured loans and remains under Government ownership.
Including the closed mortgage book assets of Bradford & Bingley, UKFI said the return of cash is expected to total between £95 billion and £97 billion over time, compared with £64 billion of funding.
UKFI said: "This means that, in cash terms, the companies are expected to more than repay the original funding provided by the taxpayer."
November's sale of Northern Rock's retail savings and mortgage business attracted criticism at the time for leaving taxpayers with a potential £400 million shortfall.
But today's UKFI report into the sale found the deal to be higher in value than all other ways of returning the business to the private sector, including by stock market listing and remutualisation.
Corporate advisers from Deutsche Bank also considered that delaying the sale by a year to 2013 - the deadline for the disposal to take place - would generate around a quarter less than the Virgin Money offer.
The report also highlighted the competition benefit of selling Northern Rock to Virgin Money, in a move creating a combined business with £19 billion of assets, 75 branches and four million customers.
Deutsche Bank received initial contact from 52 parties over the sale before this figure was reduced to 24. Of these, there were 10 private equity firms, four mutuals and eight new and emerging banks, as well as two existing UK financial institutions.
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