Paragon surprise package in battle to buy Northern Rock

Paragon has requested information about the sale of Northern Rock, according to reports, in a move that could see competition to buy the taxpayer-owned bank intensify.

Chancellor George Osborne announced the sale in his Mansion House speech last month, saying it was time for taxpayers to start getting some of their money back following the bank bailouts.

Other possible contenders to buy the bank include Yorkshire Building Society, Virgin Money, Co-operative Financial Services and buyout vehicle NBNK.

Industry sources said Paragon could become a serious bidder. If it was successful, the deal would almost double its size and allow it to move into other sectors of banking.

It is understood Paragon was at the heart of the UK’s buy-to-let boom, accounting for about one in 10 loans to landlords. It escaped the fate of its nationalised rivals Northern Rock and Bradford & Bingley after an investor cash call.

The group stopped lending in February 2008 but returned to writing new loans last year. Earlier this year it reported a 32 per cent rise in pre-tax profits to £71.8m.

Northern Rock was nationalised in February 2008 after it collapsed amid the credit crisis, sparking the first run on a UK bank for 150 years. The Government split it in two last year, forming a mortgage and savings bank called Northern Rock and Northern Rock Asset Management (NRAM) to house the more toxic loans.

It is the former half – the so-called good bank – which is preparing to return to private ownership. The Government will retain ownership of NRAM. Although the Government has ploughed some £1.4bn into Northern Rock, it is thought the bank will only fetch about £1bn at best.