Taxpayers were sitting on a potential £400 million loss tonight after Northern Rock - the lender whose dramatic collapse signalled the start of the financial crisis - was sold to Sir Richard Branson's Virgin Money.
Sir Richard has vowed to challenge the banking industry's "big five" after agreeing the £747 million deal for the Newcastle-based business, which boasts 75 branches, one million customers and holds £14 billion of mortgages.
Chancellor George Osborne insisted the price was the best available for taxpayers, who have owned the business since the first run on a UK bank in 150 years forced the Rock into public hands in February 2008.
The sale price could rise to around £1 billion with add-ons, but even at this level the price tag is £400 million short of the £1.4 billion injected by the Government during its ownership.
A further £20 billion is still owed by Northern Rock Asset Management, which houses a portfolio of mortgages and unsecured loans, and remains under government ownership.
Taxpayers' Alliance director Matthew Sinclair blasted "a terrible deal" for taxpayers.
He said: "Taxpayers will be disappointed and angry that so much of the money put into Northern Rock has been lost, after too many politicians tried to pretend the bailout would be almost free or even turn a profit."
The sale, which is expected to be completed on January 1 once regulatory approval has been secured, is second time lucky for Virgin Money, which failed in a bid to buy the bank in the aftermath of Northern's collapse in 2007.
The acquisition will give Virgin a presence in the mortgage market for the first time, fuelling hopes that it will be a stronger challenger to the dominant banks. It plans to launch current accounts in 2013.
Staff at Northern Rock's Newcastle HQ were boosted by Virgin's promise to house the operational base of the combined business in the city.
Its staff numbers have fallen from 6,000 before the collapse to around 2,000 but the workforce was told today there would be no further compulsory redundancies beyond those already announced for at least three years.
Virgin Money, which was founded in 1995 and has three million credit card, savings and insurance customers, is backed by Wilbur Ross, the billionaire Wall Street investor, as well as an Abu Dhabi investment fund.
Sir Richard said UK banking needed some fresh ideas and an injection of new competition.
He added: "Virgin has a history of entering new sectors to improve service and provide value for customers. We plan to do the same in banking."
Virgin reportedly pipped buy-out vehicle NBNK, which is led by Lord Levene and former Rock chief executive Gary Hoffman. The American private equity firm JC Flowers was also reported to be involved in the auction process.
The big five lenders - including taxpayer-backed Lloyds, Royal Bank of Scotland - currently hold an estimated market share of 83% of the personal current account market and 77% of the mortgage market.
Mr Osborne said there would be a "powerful new presence on the high street" which would offer "real choice and competition".
He added: "It's also good for British taxpayers - we are getting some of the money back that we put into the banking system under the last government.
"It's also good for the North East of England, because we are seeking to protect jobs there and make sure that the headquarters of Virgin Money will be in Newcastle."
He added that the Treasury had taken independent advice on the deal and "looked carefully at all the figures".
"It was clear to us that this was the best deal for the British taxpayer, we were getting more money back than any other deal on the table," he said.
However, Conservative MP Mark Field, who represents the Cities of London and Westminster, criticised the sale, saying the Rock was sold "for a song".
"I'm very concerned about whether we are getting really good value for the taxpayer," he said. "There has to be a sense that Richard Branson has got the deal he was craving four years ago for a song today."
The Government will receive £747 million on completion of the deal and a further £50 million within six months.
An additional £150 million will be realised in the form of a financial instrument while between £50 million and £80 million will be paid if the business is sold or floated in the next five years.
This could take the total proceeds for the Treasury to more than £1 billion.
The combined business, which is expected to operate under the Virgin Money brand, hopes to extend its reach to small businesses as part of £45 billion lending to its customers over the next five years.
Norwich, London and Edinburgh-based Virgin Money said funding of the Northern Rock Foundation will be extended to the end of 2013, allowing time to decide how it will operate after that.
Scenes of panic, with customers queuing round the block to withdraw their savings from Northern Rock in 2007, after emergency funding was agreed with the Bank of England, grew to epitomise the financial crisis. The Government announced it would nationalise the bank in February 2008.
Speaking at a conference in Birmingham, Business Secretary Vince Cable said: "The Government decided the best part of a year ago that, since Northern Rock had been split into two, as a good bank and a bad bank, there was sense in trying to find a commercial buyer for the good bank, the one that had a relatively small portfolio of defective loans.
"The judgment has been made that it's more likely to get good value for money now than if the Government held on to it.
"The Treasury have conducted the comparison between Virgin and its main competitor.
"I haven't seen the details of their evaluation, but I think one of the good things is that I do know that Virgin are very committed to their North East headquarters, to supporting the Northern Rock Foundation, and Virgin Money are a serious financial services body.
"On those kinds of grounds I can see the positives."
He added that he had not been involved directly in the process.
In a letter to the Chancellor, shadow Treasury minister Chris Leslie questioned why the sale of Northern Rock was announced during a parliamentary recess.
He said it is "obviously right that Northern Rock should ultimately be leaving public ownership", but added that "important questions" remained.
Mr Leslie asked what grounds Mr Osborne had for selling Northern Rock now rather than waiting longer for a better deal, adding that Labour wanted reassurances that revenue from the sale should be going towards paying down the country's debt.
He added: "There will be many who are concerned that, in making this decision, you gave no serious thought to making Northern Rock either a building society or a mutual.
"The mutual option was put to you by a number of groups including the Co-operative Party; however, your announcement of your intention to sell Northern Rock was made before you could have had a chance to consider those proposals or meet with any of those putting them forward."