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Rock sale: dumping Lloyds and RBS won’t be so easy

Northern Rock sale to Virgin Money underscores how much harder it will be for the government to dispose of its other bank stakes.

 
Rock sale: dumping Lloyds and RBS won’t be so easy

Britain’s sale of nationalised lender Northern Rock to Virgin Money underscores how much harder it will be for the government to dispose of its stakes in Lloyds (LLOY.L) and Royal Bank of Scotland (RBS.L), an analyst has warned.

The deal will net the government between £747 million and £1 billion, the Treasury said, after the government poured in £1.4 billion in 2008 following a run on the bank.

Read our report on the sale of Northern Rock to Virgin Money

‘The sale of Northern Rock serves to focus the mind more on how relatively difficult it will be for the UK government to extricate itself from its other stakes in the partially state-owned RBS and Lloyds,’ said Michael Loungo, analyst at Arbuthnot Securities.

Calling the sale ‘positive’, he added, ‘This is the easiest one: you had a private company, Virgin Money, engaging with a single owner – and you got a deal done.’

The government’s positions in the other two lenders is indeed significantly different, after it finished with stakes of around 83% in RBS and some 40% in Lloyds in the wake of bailouts worth about £66 billion in 2008.

Loungo also noted that the Northern Rock sale trained the eye on how the government could facilitate the sale of the 632 branches that Lloyds has been told to shed by European authorities.

Billionaire Richard Branson, Virgin founder, said earlier this year that he wanted to take control of the hundreds of branches that Lloyds has been told to sell by European authorities.

But so far, NBNK – the new banking venture formed by former Lloyd’s of London chairman Lord Levene – has been the only prospective buyer to make a formal offer. The Co-operative group is another potential bidder for the business.

‘I’m not sure this excludes Virgin from that auction,’ Loungo said, noting that he believed the branches sale was on hold ‘given what’s going on at Lloyds’. He was referring to the shock departure for sick leave of the bank’s chief executive, Antonio Horta-Osorio, which left its outgoing finance director, Tim Tookey, in charge.

Simon Willis, analyst at Daniel Stuart, said the Northern Rock deal shouldn’t have much impact on the Lloyds auction as ‘Virgin Money was not a front-runner.’ He also said it was ‘good news’ that the government had completed the deal, as well as being beneficial to Virgin Money, ‘as it gives it a major leg-up in market presence’.

Loungo, for his part, pointed out that Virgin Money now had to grow either through acquisitions or organically – and that organic growth would be difficult, in light of Britain’s sluggish economy and the market presence of its three largest competitors.

This pointed to Virgin Money’s strategy going forward ‘being more acquisition-oriented than on organic growth,’ he continued, adding that if the group really wanted to achieve scale, ‘potentially they do this deal and then the next deal they do is for Lloyds branches’.

5 comments so far. Why not have your say?

sgjhaghsdg

Nov 17, 2011 at 12:11

Also, this was the "good bank" that was sold, and Northern Rock "Asset" Management - the bad bank - is still owned by HMG, but has been renamed "UK Asset Resolution Ltd" and Bradford & Bingley has also been lobbed in there.

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mikeran

Nov 17, 2011 at 13:57

tthere was no need for UK govt. to sell at this time part of Northern Rock for a loss while at the same time retaining the bad debt side of this bank. Obviously it made an almost asset stripping exercise of this sale.

As for Lloyds and RBS whatever changes they have made since UK govt bailout, to stabilise their overall position, they have been hammered by the Market players . Presumably to ensure that somewhere along the line they too can be picked off and asset stripped with a significant loss to the UK taxpayer.

There is no way that the recent Eurozone turmoil can of itself account for the current SP levels.

The Government advisers in charge of UK govt . shareholding of these banks has been conspicious by its silence as has of course LLoyds Bank following the loss of its CEO. Time they started looking at shorting of UK banks, Use of HFT systems for this purpose and the continual feeding of the Media to support this activity.

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Alan Tonks

Nov 17, 2011 at 14:22

“How relatively difficult it will be for the UK government to extricate itself from its other stakes in the partially state-owned RBS and Lloyds.”

It just has to give the best bits away for a song, and then yet again leave the rubbish bits for the taxpayer.

Oh for a Government that thinks of their people, rather than a Government that thinks only what is best for them.

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Roger Lawson

Nov 17, 2011 at 18:04

The Government is clearly going to make a large profit if you combine the amount receivable from Virgin Money for the "good" part of Northern Rock, and the probable outcome of the wind-down of the "bad" part. For a fuller analysis and commentary, please see the press release issued by ShareSoc on this web page: www.sharesoc.org

As someone who was very involved in the past events at Northern Rock, I may have a particular view on this, but no doubt we will see more "spin" on the history of these events (Milliband has already started that ball rolling).

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Anonymous 1 needed this 'off the record'

Nov 18, 2011 at 18:31

We all as shareholders have more than an interest in an organisation that selectively paid its charitable fund a dividend then extricated is ordinary bread and butter shareholders and misled them into thinking everything was rosey and took there money similarly Bradford and Bingley RBS and HBOS.

these gentlemen at the top should be prosecuted for fraud and misrepresentation.

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