Virgin Money are competing against a bid from JC Flowers, US investor which specialises in the financial sector
Flowers already owns a stake in UK building society, Kent Reliance.
Richard Branson had already made a run at Northern Rock in 2008 but was denied by then Prime Minister, Gordon Brown who opted to nationalise the bank rather than sell it to a private investor.
Virgin’s bid is also rumoured to be supported by an anonymous investor from Abu Dhabi.
Branson’s group has already been backed by WL Ross, the American firm headed by Wilbur Ross, a minority shareholder in Virgin Money.
Should Virgin Money’s bid be successful, Carlyle and USS would own minority stakes in Virgin Money.
Carlyle is one of the biggest and most successful buyout firms in the world and once employed former Prime Minister Sir John Major as an adviser.
It has invested extensively in the US banking sector but the bid for Rock would be the first foray into the British banking sector.
The USS manages about £30bn of assets and is the second biggest pension fund in the UK behind BT.
The Sunday Times reported in July that Virgin Money and JC Flowers had offered around £1bn for the business, less than the £1.4bn the UK government had injected over three years ago to stave off collapse of the mutual.
The Rock has since been split into two and the “bad bank” which holds the mortgage servicing business, now known as Northern Rock Asset Management, is now more profitable than its sister entity.
The Treasury has said that it wants to agree a sale of Northern Rock by the end of the year although they retain the right to decline the transaction if it is judged unlikely to deliver taxpayer value.
Ray Boulger, senior technical director at John Charcol, said: “It’s more likely that Virgin Money would go after Northern Rock than the Lloyds Banking Group branches because I find it difficult to believe that Virgin would want 600 odd branches.
“Northern Rock only have 90 branches so if Virgin wanted to buy the existing business that’s on the market, I would think that a smaller branch network would suit the way they operate rather than a large branch network.
“What’s good for consumers will be what’s good for intermediaries. Northern Rock does about 90% through their intermediaries because they haven’t got many branches so it’s particularly relevant to the intermediary sector."
Boulger went on to say that Virgin Money had attempted to focus on doing business direct in the past, offering their flexible mortgage direct only while being critical of the intermediary market.
But he added: “A few years later when they realised they could only do the volumes direct, they embraced the intermediary market.
“So I’m sure they would have learnt from their previous experiences in the mortgage market and will recognise that if they want to do serious volume, they do need to use intermediaries so hopefully it wouldn’t be the worst scenario if Virgin get Northern Rock.
“The worst solution from an intermediary and consumer perspective would be if Rock was bought by a lender which already has a significant stake in the mortgage market. What you’d certainly find then is that the brand would disappear."
“From both a consumer and intermediary perspective, the ideal solution is that Northern Rock is bought by somebody like Virgin who doesn’t have an existing place in the market,” he said.
“That way Northern Rock would be preserved, not necessarily by the brand, but the concept of having a separate lender which would be the preferred solutions for intermediaries and consumers.”
