The Chancellor hopes to find a buyer by the end of the year who is prepared to use the bank to inject competition into the high street. It is expected to attract bids of around £1bn.
Rather than floating it on the stock market or responding to pressure from some MPs for it to be mutualised and turned into a building society, the Chancellor has decided to sell the bank to a single buyer as this is “likely to generate substantially the best value for the taxpayer and turned to as the first option”.
Osborne received advice from the UK Financial Investments and UKFI’s adviser Deutsche Bank that a sale would raise twice as much for taxpayers than a flotation or mutualisation
The Treasury expects to receive bids from Yorkshire Building Society and from Coventry which would turn Northern Rock into a building society. Other potential buyers include Virgin Money who expressed an interest in buying the bank in 2007, investment groups NBNK and Olivant, and Tesco Bank.
In his speech the chancellor also announced that he will back proposals calling for the ring-fencing of retail banks. They call on banks to separate their retail services from their investment banking arms and that banks should hold more capital to protect themselves against future losses.
Northern Rock was nationalised in February 2008, in the early stages of the financial crisis and served as an early indication of the troubles that would befall other banks and financial institutions.
Osborne said: “Images of the queues outside Northern Rock branches were a symbol of all that went wrong, and its chaotic collapse did great damage to Britain’s international reputation. Its return now to the private sector would help to rebuild that reputation.”
