The body which looks after the Government’s holdings in bailed out banks has backed George Osborne’s decision to sell Northern Rock to Virgin Money late last year.
UK Financial Investments says the deal represented the best value for the taxpayer as the terms of the deal mean that including the £747m that Virgin Money initially paid to acquire the bank the final return to the taxpayer should be around £1bn, more than any other bid would have delivered.
It also says that as £37bn of Government loans are repaid over the next 10 to 15 years, the taxpayer should see an overall profit of £11bn.
UKFI’s report adds that selling the bank in late 2011 was the best time to maximise return on the sale. It says UKFI was watching bank share prices slide adding that the sale had to be complete before the strict December 31 2013 deadline put in place by the European Commission as a condition of allowing state aid to the bank at the height of the crisis.
The report says: “UKFI, having taken advice from Deutsche Bank, concluded that a sale to Virgin Money was the option that would maximise value for the taxpayer. The transaction met UKFI’s mandated objectives to create and protect value for the taxpayer as shareholder, paying due regard to financial stability and competition and it met the European Commission sale deadline of 31 December 2013.”
The report is likely to be seen as a vindication for Chancellor George Osborne who came in for criticism after he announced in his Mansion House speech last year the bank was being put up for sale.
Labour warned of asset stripping at the bank after the sale because part of Northern Rock’s capital buffer was being used to pay for the bank. The FSA said it was happy capital levels at the bank remained adequate. Some MPs complained more should have been done to remutualise the Rock. The report says even if a mutual had placed a final bid for the firm it would have only brought in half the money a sale would have.