Northern Rock to become Virgin Money - or more aptly - Virgin Rock?

Today’s announcement of the sale of Northern Rock is set to add to the changing face of UK banking that will accelerate next year.

While the smiling face of Richard Branson suggests that he is behind the deal, his involvement is more indirect. The man behind the deal is Wilbur Ross, a billionaire US investor whose company WL Ross & Co is one of the world’s biggest purchasers of distressed assets. His company has been looking at Northern Rock for some 4 years and initiated a bid with Virgin Money before the former was nationalised and split up into a good and bad bank. Part of the attraction is a higher level of deposits compared to assets – highly unusual among European banks – thereby avoiding reliance on the wholesale money markets.

Last year WL Ross & Co bought a 21% stake in Virgin Money for £100 million, with a further £500 million promised to help fund the extension of a branch network.

Over time the Northern Bank will be lost and its 75 branches re-branded Virgin Money. Despite a customer base of a combined 4 million few cite either Northern Rock or Virgin Money as a main financial services provider. Perhaps Virgin Rock would be more in keeping with the legacy of both institutions.

Former Bank of England Director and Chairman of Prudential plc, Sir David Clementi is Chairman of Virgin Money. James Lockhart, Vice-Chairman of WL Ross sits on the board of Virgin Money.

Mr Ross will play an increasing role in the re-structuring of UK retail banking in the coming years. Earlier this year he was part of a consortium that saved the Bank of Ireland from full state ownership by taking a 35% stake. In the next 2 years both Virgin Money/Northern Rock and Post Office Financial services intend to offer current accounts. Post Office Financial Services is a joint venture between the Post Office and the Bank of Ireland (UK) Ltd.

A bid by Mr Ross for the Lloyds Banking Group branches is a possibility, although the ratio of loans to deposits will be a big disincentive in the current difficult funding climate. Given the ability of Mr Ross to finesse deals at very advantageous prices the purchase of the 600 branches together with a 4.6% current account market share would make him a formidable player in UK retail banking – with a draw full of financial services brands – and at a time of turmoil at the top of the Lloyds Banking Group.