Investment Markets » Banking and Finance
Can Branson Rescue Northern Rock?
The Virgin Chief has never surrendered his ambition to become a serious player in British banking. Has opportunity knocked?
The top brass of Northern Rock endured a bruising three-hour session at the hands of MPs, but it could have been a good deal worse. Just a few weeks ago, the Newcastle-based bank looked unsaleable at any price; now at least there's serious interest from three putative buyers – including the old daredevil himself, Sir Richard Branson.
By Branson's usual standards, the launch of his bid was demure: there was no eye-catching costume and no acrobatics. After coming a cropper bungee-jumping in the US in an effort to publicise his airline Virgin America, Branson's restraint was understandable. But it also spoke volumes about the seriousness of his intent. If the Rock rescue works, it could well be seen as Sir Richard's most audacious gamble yet.
Branson has been trying to shake up the British banking industry ever since he launched his consumer finance operation, Virgin Direct, back in 1995 – so far, without much impact. The rump of that operation, Virgin Money, is a relatively small £25m credit card business, yet he plans to use it to gain control of Northern Rock's 10% of the UK mortgage market, rebranded under the Virgin banner.
There is a precedent: Virgin Mobile's merger with NTL last year was based on a similar structure. But central to the deal is the assumption that customers are more likely to entrust their financial affairs to the Virgin brand than, say a banking specialist such as bid rival Christopher Flowers – and that's by no means a given.
It won't help that so many previous Branson ventures have been more sitcom than serious drama. But behind the beard, there's a heavyweight consortium, including financial giant AIG, turnaround guru Wilbur Ross, former Barings chief Peter Norris and RBS's erstwhile chairman George Matthewson.
The collective wisdom of this intimidating bunch of bigwigs is certainly comforting, but they won't be running the outfit. The person lined up for that job in Virgin Money chief Jayne-Anne Gadhia, who has never run a public company before.
The real question though, is where's the cash? Northern Rock needs a serious dose of £30bn over the next few months to refinance its debts and, so far, there's little sign of it – either from Branson or his hedge fund rivals. Moreover, even if an offer does materialise, it's likely to be priced so low as to be precious little comfort to Northern Rock shareholders.
Branson's intervention is a brave move that sets the benchmark for rival offers. But, until we see the colour of their money, none of these bids is anything but a lot of hot air.
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