The Chancellor of the Exchequer (Mr George Osborne)
On 15 June 2011 I announced that I had put Northern Rock plc up for sale.
The bidding process has now finished and on 17 November 2011 I announced the sale of Northern Rock plc to Virgin Money. The Financial Secretary is also updating the House on the sale of Northern Rock plc today.
The deal was reached following an open, transparent and competitive bidding process. It is expected to complete on 1 January 2012, pending European Commission merger clearance and Financial Services Authority approval.
This statement provides full details of the consideration HM Treasury will receive for the sale:
Cash: HM Treasury will receive cash of £747 million on completion and around an expected further £50 million cash in the second quarter of 2012 relating to the net asset value of Northern Rock plc upon completion.
Tier 1 Capital Notes: Virgin Money will issue to HM Treasury on completion Tier 1 Capital Notes with a par value of £150 million and an annual coupon of 10.5%. The terms of these notes have been designed to be compliant with current GENPRU requirements and the expected requirements of forthcoming CRD4 regulations which will implement Basel III guidelines into European law. Accordingly they include features such as principal loss absorption and discretionary interest coupons. Virgin Money has indicated that it intends that these notes would be exchanged, or purchased by the acquirer, upon an Initial Public Offering or sale, without reducing the amount and quality of the firm’s capital resources, which would allow HM Treasury to exit its investment.
Additional cash consideration: HM Treasury will receive additional cash consideration payable upon Virgin Money delivering a future profitable Initial Public Offering or sale in the next five years. The maximum payment would be £80 million if this occurred in 2012; £70 million in 2013; and £50 million in 2014 to 2016 inclusive.