Northern Rock 'will make the taxpayer £9bn-£11bn'

UKFI said the sale to Virgin provided the most attractive outcome in terms of new competition in the UK banking sector

The taxpayer will make £9bn-£11bn profit on the £37bn bailout of Northern Rock when it is eventually run down, the body which holds the public's shareholdings in banks said yesterday.

UK Financial Investments (UKFI) said the sale of the good part of Northern Rock to Virgin Money for up to £1bn and the run-off of the so-called bad part of the bank over the next 12 to 15 years – including interest payments and repayment of loans – could see a return of £46bn-£48bn. That would mean the taxpayer makes a substantial profit.

UKFI pointed out that the annual return to the Government on such an outcome would be between 3.5 per cent and 4.5 per cent, while the cost of funding state loans to the former building society ran at 3.9 per cent. That debt has now been cut to £20.7bn.

Northern Rock was nationalised in February 2008 after the Government was forced to back it following the first run on a UK high street bank for more than century in September 2007.

It was split into the good bank and bad bank at the start of 2010 and the former sold to Virgin Money in November for £747m up front and other potential payments of up to £280m. The bad bank has stopped selling mortgages and simply collects and services outstanding loans.

UKFI also claimed that its analysis showed that the sale of Northern Rock to Virgin Money had been the best result for the taxpayer.

It said Deutsche Bank, which had been brought in as its adviser on the sale, had put an estimate on the proceeds of between £863m and £977m.

This compared with Deutsche's estimates of the proceeds for the taxpayer from an initial public offering from £270m to £495m, a remutualisation worth between £415m or a sale of Northern Rock's deposits and run-off of its loans which could have made from £561m to £625m.

UKFI also said its analysis showed that holding on to Northern Rock until 2013 (when it had to be sold under EU state bailout rules) would not greatly have added to its valuation, which even then would have been a quarter less than Virgin paid.

It said that while there had been some political support for remutualising Northern Rock, it would have been the least productive outcome for the taxpayer. This is because the Treasury would have had to give free shares to the bank's customers as they converted into members of the mutual.

At the same time, the value of taxpayer stake in a mutual would have been far less certain over time.

The sale to Virgin also provided the most attractive outcome in terms of new competition in the UK banking sector, according to UKFI. It preserved the existing branch network and has the potential to "devlop into a challenger bank in the future".

At the start of the auction in June last year, 52 parties indicated an interest in Northern Rock and 24 signed confidentiality agreements. Of these, 10 were private equity firms, four mutuals including at least two building societies, eight new banks or bank vehicles and two existing financial institutions. Only five made first-round bids and only two were in the second and final round.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
PROMOTED VIDEO
Arts and Entertainment
The Apprentice finalists Mark Wright and Bianca Miller
tvBut who should win The Apprentice?
News
news
Extras
indybest
News
Elton John and David Furnish will marry on 21 December 2014
peopleSinger posts pictures of nuptials throughout the day
Sport
Brendan Rodgers looks on from the touchline
SPORT
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick