View the article online at http://citywire.co.uk/money/article/a543286
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.
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’.
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by Gavin Lumsden on Aug 30, 2016 at 00:01