Chalk this up as insane is the first reaction. Richard Branson’s Virgin Group is in talks to buy Northern Rock, reports the Times. But this is serious.
The bearded one has been in discussions for three weeks with Merrill Lynch, advisers to the former bank, and with other financial institutions and investors about forming a consortium to take a controlling stake in the striken lender.
Now, FT Alphaville hears, it’s crunch time. Virgin and its backers, which are thought to include a Middle Eastern sovereign wealth fund as well as a big US investor, are racing to meet a deadline of today - Friday - set by Merrill to submit proposals for Northern Rock.
Whether the Virgin consortium makes the deadline is another matter. Merrill is expected to receive a slew of requests today to extend by at least seven days.
The sums involved would be vast - far more than Branson has at his disposal - and investors with very deep pockets would be required to make the numbers work. The bank must refinance about £14bn of short and medium-term funding within 12 months, but has so-called “liquidity funding” from Citi to manage its ongoing needs. Citi is considering raising up to £25bn of extra funding alongside other banks to help a potential bidder.
The plan would apparently be to fold the Crock into Virgin Money, which has been rumoured to be eyeing another run at the mortgage market since Jayne-Anne Gadhia returned to the business from RBS in March. Gadhia helped to launch Virgin One, the offset mortgage provider in 1998, but moved to RBS when Virgin’s 50 per cent stake in One was sold to the bank in 2001.
Branson sees Virgin, which as a private conglomerate functions not unlike a private equity firm, as a collection of hugely successful companies trading on the strength of the brand. Having been through music, shops, record labels, airlines, trains, budget airlines, holidays, cola, health clubs, weddings, mobile phones and vodka, he clearly believes that the much-admired red logo could help rehabilitate Northern Rock, which has seen its brand immeasurably damaged over the summer as queues of anxious customers formed on the pavements to withdraw their money in the UK’s first bank run for 140 years.
Which just leaves one question - what could this new bank be called? Northern Virgin? Insert punchline here.
