The early sale of Northern Rock to Virgin Money was the “best way” to protect the taxpayer from greater losses, said a report from the spending watchdog.
Northern Rock Plc was sold last November to Sir Richard Branson’s firm in a deal that is expected to rack up a £480m loss for the taxpayer, the National Audit Office (NAO) said.
UK Financial Investments (UKFI), the body set up by the Treasury to manage state holdings in bailed-out banks, ran the sales process well, the NAO added.
However, the watchdog warned that UKFI had calculated that the former Northern Rock assets that remain in public ownership, under Northern Rock Asset Management, could lead to a net cost to the taxpayer of some £2bn when taking account of risk and deferred proceeds.
UKFI earlier this year said the bank’s period of public ownership should generate a straight cash profit of up to £11bn for the taxpayer over the next 10 to 15 years.
Amyas Morse, head of the NAO, said: “A sale of Northern Rock plc at the earliest opportunity was the best option to minimise losses on the £1.4bn of public money invested in the bank.
“But most of the former Northern Rock’s assets will be in public ownership for many years to come and there could be a net cost for the taxpayer of some £2bn by the time these assets are finally wound down.”
The watchdog also hit out at the Treasury in 2009, fronted by the then Chancellor Alistair Darling, for failing to look at the full consequences to the taxpayer when it decided to split Northern Rock in two.
The NAO said the decision was “reasonable” but based on a business plan prepared by Northern Rock management which events showed to have been “optimistic”.
However, the NAO said the alternative – selling the deposits and closing down the business – was unlikely to have been significantly better in financial terms.
Sir Richard vowed to challenge the banking industry’s “big five” when he agreed the £747m deal for the Newcastle-based business, which boasts 75 branches, one million customers and holds £14bn of mortgages.
Chancellor George Osborne insisted the price was the best available for taxpayers, who have owned the business since the first run on a UK bank in 150 years forced the Rock into public hands in February 2008.