Sunday, 20 November 2011

Northern Rock and Virgin

So Nothern Rock was sold to Virgin. Or at least sold to a consortium led by Virgin. This weekend has been very interesting. Would the press focus on the 'good story' and talk about all the great things Virgin can do for service in the industry or would they be more interested in the bad and things like the 'taxpayers loss'. It's fair to say that the jury is still out. I think the trouble for Osborne is that he has to explain in simple terms a fairly complicated deal. What Virgin has bought is cheaper than it was when it got bailed out, but it's actually more expensive than the top banks when you look at the price relative to the asset base and one could argue they paid too much. The reality is that many assets (look at property for example) are not worth as much today as they were 4 years ago. However what I'm most interested in why they want it and what they plan to do with it. Why would you buy a bank with the majority of it's customers and branches in the north where austerity will have the most profound impact? It is unlikely that running it "as is" will make them any money, so there would either be a sinister plan to strip/sell it's assets  (after the 3 years they have promised no redundancies) or an ambitious growth plan. I sincerely hope Virgin has plans to expand, it will require brave decisions and A LOT of cash but I for one will be rooting for them.

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