In their eagerness to begin the detachment of the taxpayers from their holdings in the failing banks, the Government has announced plans to sell Northern Rock. It is understood that the Chancellor, George Osborne is hoping to find a buyer for Northern Rock by the end of the year.
The Chancellors decision to sell Northern Rock comes after receiving advice from Deutsche Bank, who act as advisers to UK Financial Investments the government quango that looks after the taxpayers shares in the bailed-out banks.
A sale to a large existing banking name is ruled out as the government seek to create new competition in the retail banking market. However, there is no shortage of suitors with building societies such as the Coventry and Yorkshire expressing an interest in Northern Rock along with Sir Richard Branson’s Virgin Money. Virgin Money are keen to bid for Northern Rock in addition to the 632 branches that are being sold off by Lloyds. Remutualisation of Northern Rock has now been firmly ruled out. Other interested parties include, National Australia Bank, investment groups NBNK and Olivant, as well as Tesco Bank.
Most controversial interest in Northern Rock is anticipated bid from the American private equity group Blackstone. Headed by Stephen Schwarzman, an American billionaire, Blackstone along with its partners, successfully acquired the Bank United of Florida for at the height of the economic crisis for $945m in 2009, then floated it on Wall Street for $2.6bn earlier this year – tripling their investment in two years!
Blackstones interest in Northern Rock is causing alarm, as it was Schwarzman’s company which is largely blamed for the collapse of Southern Cross, the UK’s biggest care home operator. Blackstone owned Southern Cross from 2004 to 2006 and is accused of supporting the business model that has seen Southern Cross crippled by an unsustainable rent bill. Blackstone are widely feared as being famed for short-termism and asset-stripping.
The City experts doubt that a sale of Northern Rock will enable the taxpayer to recoup their £1.4bn investment in Northern Rock. With many financial experts expressing doubts as to the wisdom of selling in such a depressed market, with most UK banks trading below their book values. Any losses sustained by the sell-off of Northern Rock are widely expected to be offset by the repayment of tens of billions of the state loans currently held by Northern Rock Asset Management, the ‘bad’ arm of the bank which will remain in public ownership.
