Taypayers lose out as Virgin snaps up Northern Rock at bargain price

The lender, which was nationalised in February 2008 after the first run on a UK bank for 150 years, has been sold for £747 million but this figure could rise to around £1 billion with add-ons.

Chancellor George Osborne insisted the deal was the best available for the taxpayer and would ensure a “powerful new presence” in high street banking.

It is second time lucky for Virgin Money, which failed in a bid to buy the Newcastle-based bank following its collapse in 2007.

The proposed acquisition, which gives Virgin a presence in the mortgage market for the first time, includes 75 branches and 2,100 staff, one million customers, a £14 billion mortgage book and retail deposits worth £16 billion.

However the sale price is less than the £1.4 billion injected by the Government during its public ownership. And there is still £20 billion owed by Northern Rock Asset Management, which houses a portfolio of mortgages and unsecured loans and remains under government ownership.

The operational headquarters of the combined business will be in Newcastle, while Virgin Money has pledged no further compulsory redundancies beyond those already announced for at least three years.

Virgin Money, which was founded in 1995 and has three million 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.

Virgin currently offers credit cards, savings and investment products and general insurance products but no mortgages. It employs around 500 people in Norwich, Edinburgh and London.

Mr Osborne said there would be a “powerful new presence on the high street” which would offer “real choice and competition”.

“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.

“And 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.

The sale is subject to regulatory and EU merger approval but should be completed by the start of January.