As National Australia Bank prepares to appoint advisers for a potential bid for British bank Northern Rock, it appears certain to face stiff competition from the country’s most famous entrepreneur – Sir Richard Branson.
Branson previously bid for Northern Rock when it almost buckled in 2007 at the start of the Global Financial Crisis, but his ambitions were thwarted when the British Government decided to nationalise the bank to protect deposit and mortgage holders.
But Branson has continued to develop his banking business Virgin Money. In 2007 the company hired former Royal Bank of Scotland executive Jayne-Anne Gadhia to spearhead its banking push and in October last year the company formally applied for a banking licence.
It is still awaiting approval from the Financial Services Authority, but reports overnight from Reuters suggest Virgin Money could announce the acquisition of a small, possibly unlisted British bank by the end of the month, although it is likely to take some time to complete any deal.
However, this acquisition is unlikely to rule Virgin Money out of the race for Northern Rock, which announced overnight that it has formerly split its operations into two: a “good” bank, which Virgin and NAB seem certain to bid on, and a “bad” bank, which will also be placed up for sale.
The “bad” bank contains Northern Rock’s riskiest assets, while the “good” bank is a classic (and cleaned up) traditional banking operations that will take deposits and make loans.
It contains 10 billion pounds in mortgages, five billion pounds cash, five billion pounds of the government loan to Northern Rock and 19 billion pounds in retail deposits. All deposits will continue to enjoy a 100% government guarantee.
While NAB has refused to comment on the Northern Rock speculation, investor opinion appears divided as to whether the bank should expand further into the British market.
NAB already owns the Clydesdale and Yorkshire Bank in the UK and some analysts are worried about the bank’s track record with managing overseas assets.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
