Virgin Money applies to FSA for banking licence
Virgin Money said it was interested in expanding the business to offer current accounts and mortgages
- guardian.co.uk, Friday 23 October 2009
Sir Richard Branson's finance arm, Virgin Money, has applied to the City regulator for a banking licence in a move widely expected to be in preparation for a takeover bid for Northern Rock.
The company said it applied two weeks ago to the Financial Services Authority for a licence to sell current accounts and mortgages and gain a high-street presence.
Talks were also in progress with former Northern Rock chairman Bryan Sanderson to become a non-executive director of the newly formed bank, the company said.
Next week the government will be told if plans to hive off Northern Rock's toxic mortgages into a "bad bank" will be given the go-ahead. The European commission is expected to rule on Wednesday on the plans that would also create a "good bank" with its existing savers and high-quality mortgages.
The government is expected to consider selling the good bank to a new player in the industry to raise vital funds and counter criticism that the financial crisis has consolidated the power of the major banks and raised competition concerns.
Ministers are also keen to see fresh capital put into the banking system, which is struggling to find the funds to lend to businesses and homebuyers.
Analysts have speculated that Tesco would be interested in buying Northern Rock to expand its financial services business. Private equity firms have also privately expressed an interest in buying distressed assets in the finance sector.
Virgin Money said it wanted to expand to offer current accounts and mortgages. "From the time we bid for Northern Rock to the present, we have had a stated aim to acquire a banking licence and offer our customers current accounts and mortgages. But we have no formal plans [to buy Northern Rock] at the moment."
Virgin Money reported pre-tax profits for 2008 up £4m to £24.4m on a jump in turnover from £77m to £98.5m.
The company, run by chief executive Jayne-Anne Gadhia, has approached Sanderson to be a senior non-executive director of Virgin bank to satisfy the FSA that it has the experience and managerial firepower to take on a banking licence. Sanderson, a former boss of Standard Chartered, was parachuted into Northern Rock after its collapse to support a rescue and sale of the business. He led an in-house bid against a rival offer from Virgin, but the government eventually withdrew the sale and nationalised the bank.
One analyst said Virgin was likely to get the go-ahead despite being a relative minnow. "If it can raise the funds to buy Northern Rock, it will become a player, but without it Virgin will be little more than a small private bank," he said.
Alistair Darling, the chancellor, hopes to separate Northern Rock this year. However, its restructuring and subsequent sale is expected to be contentious even if it is waved through by the commission. Former shareholders are angry over nationalisation and prospective buyers are unlikely to satisfy the taxpayers' demands that the government get a return on the £14bn support now in place.