Treasury financial secretary Mark Hoban has rejected criticism from Labour over the £250m of Northern Rock’s capital base that is being put towards the purchase of the bank by Virgin Money.
During a statement in Parliament this week, Shadow Treasury minister Chris Leslie raised concerns that using the capital to help finance the £747m deal amounted to “asset-stripping”.
Hoban replied: “Virgin Money has clearly set out to be a strong and dependable partner. Its core tier-one capital ratio is 15 per cent, which is much higher than that of many existing high-street banks, which averages about 10 per cent.” He said the sale was a good deal for taxpayers, customers and the North-east.
The £250m of Northern Rock capital makes up about one-third of the sale price. A further £150m was taken from the capital base of Virgin Money, £250m came from US financier Wilbur Ross with Richard Branson’s Virgin Group and an Abu Dhabi fund contributing around £50m each.
The Government will hold a £150m capital instrument in Virgin Money which will pay interest of 10.5 per cent. If there is a profitable sale or stockmarket float within five years there will be a further payment to Government of £50m-£80m.
The Labour Government injected £1.4bn into Northern Rock.