Categories: Mortgages| Economics / Markets
Topics: Northern Rock
A leading Liberal Democrat has claimed the taxpayer is being "taken for a ride" over the sale of Northern Rock to a consortium led by Virgin, amid fears the bank wil have its assets stripped.
Experts fear the bank has been sold virtually for free under a deal which could see Sir Richard Branson's empire claim its cash supplies, according to the Daily Mail.
Lord Oakeshott, a City investment expert, said he was deeply concerned the sale is ill-advised and ill-timed: ‘Wilbur Ross and his frontman Sir Richard Branson have taken the Treasury and the taxpayer for a ride.
Virgin Money announced it is paying £747m for Northern Rock after ministers accepted an offer ‘in the best interests of the taxpayer'.
Branson's company is putting up only £50m, plus around £250m from U.S. investor Wilbur Ross and £50m from an Abu Dhabi investor.
However it is feared the actual price tag will be very little as Virgin can raid the Rock's ‘cash buffer', reserves built up since the credit crunch.
The worries surround the amount of back-up cash - or Tier One Capital ratio - Northern Rock has.
Most banks have a buffer of around 10% of their loan book to absorb default losses. But Northern Rock's was far higher at more than 30% at the time of its half-year results in June.
However, Virgin has only pledged to keep the capital ratio at ‘a minimum of 15%'.
It is feared Virgin could raid around £250m from Northern Rock's reserves as well as another £345m if the ratio was cut even more.
As a result, Virgin Money could use the cash buffer effectively to fund the deal.
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| Comment | Fears Virgin will strip Northern Rock's assets |
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Capital
However, isn't the reason the capital surplus is so high how, because of the millions that went into Northern Rock when the government guaranteed 100% of Rock's deposits. These accounts will most likely move funds out now that's it's back into private ownership and only the first £85,000 is guaranteed.
Posted by: MarkG
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Richard Branson tries to portray this image as the peoples champion, when in fact he is just as greedy as the rest of our so called patriotic tycoons, he appears to have pulled the wool over the government's eyes, asset stripping used to go on a lot years ago and whilst it is not illegal in a case like this it would quite rightly make people angry that our government allow this to happen, especially when we the public are paying for, i may have this wrong but if he intends to reduce the cash buffer to say 10% why can't the government do this before they sell it to him and return the cash to the taxpayer £250m + what he is paying means the taxpayer practically get there money back........Although he would probably change his mind then, why can't we keep it and make it the peoples Bank run on a non profit basis, least that way we might get better interest. and it would give the other banks something to think about.
Posted by: geoff