North Rock in Private Eye Nov 2011

Just how good a banker is Richard Branson?

Well he’s not really a banker at all, according to the latest figures from his Virgin Money group, which will soon be replacing the Northern Rock name on the high street.

Virgin Money is a credit card business run in association with MasterCard and real banks such as Bank of America and until recently, Royal bank of Scotland. For 2010 it had a turnover of £74m, on which it made a pre-tax profit of £42.5m. Its income from loan business was just £156,000.Virgin Bank, formerly Church House Trust, acquired for £13 million, plus the existing unit trust, ISA and insurance business, is to be found in Virgin Money Holdings (UK), the parent also of Virgin Money. Banking produced revenues of just £1.2 million last year out of £91 million. These were dwarfed by the credit card income and by £28 million from “investment and protection”.

Banking produced a first year loss of £2.7 million (Church House was acquired for its banking licence; Virgin deposits were previously held at RBS), whereas the group profit was £36.5 million. There were further losses of £12 million due in part to “building a retailing banking platform”. Virgin Bank is in effect a start-up, as indicated by a loan book of just £21 million and total banking assets of £134 million.

The main UK parent for the Branson bank is Virgin Financial Services UK Holdings. Its cash flow statement showed an outflow of cash from operating activities in 20120 of £75 million, plus another £11 million on capital expenditure and investment. That hole was largely filled by Branson’s American partner, financier Wilbur Ross, who injected £96.5 million in return for 22 per cent of Virgin Money Holdings.

The Ross investment came from America’s home grown tax haven, the state of Delaware. But then the Virgin banking business, including now Northern Rock, all goes back to the equally tax-efficient British Virgin Islands, and those Branson discretionary family trusts.

 Does the lack of Virgin banking experience suggest that Northern Rock is seen more as an investment than a career, with the aim of selling off in part, via a flotation, or whole to a bigger rival sooner rather than later at a profit – unlike the government?

If anyone disputes the financial data we’d be happy to hear from them….

Chancellor has signed a bad deal for taxpayers with Northern Rock sale

Michael Stephenson, General Secretary of the Co-operative Party, said:



Today the Chancellor has signed a bad deal for the future of Northern Rock. George Osborne has missed a real opportunity to return the Rock as a new mutual, which would have signalled the government had learnt crucial lessons from the banking crisis. The sale to Virgin is a resurrection of the failed former model. This fire-sale demonstrates Osborne is not willing to think long term about how banks can serve their customers and reduce risk for taxpayers.

Lost opportunity in Northern Rock sale

The news today that the Government has sold our bank to Virgin Money is a great disappointment and a lost opportunity.

The deal in my view significantly undervalues the long term worth of a newly capitalised bank with few poor debts.

The price of £747 million plus perhaps further bonus payments is more about the Chancellor being able to make a political statement about Government getting out of the banking business than a fair deal for all.

And even at that price it should be remembered that it’s based on having expropriated our shares – something that didn’t happen to RBS or Lloyds. Maybe this was because they had more friends in high places in the City than we did.

The opportunity that’s been missed is to allow Northern Rock to have returned to the mutual sector and remain focussed on its historical role – financing homes for ordinary people.

No doubt the name will be swept away and replaced by one which has been used for cola, wedding dresses and a plethora of unsuccessful business activities.

It’s a sad day for all of us in the North East of England.


Robin Ashby

Zero value of Northern Rock shares is upheld

by Iain Laing, The Journal Oct 7 2011

A TRIBUNAL has turned down an appeal against the decision that Northern Rock shares had no value after the Government bail-out.

Shareholders challenged the valuation of the Newcastle bank’s shares at zero after the value of government aid given when it was nationalised in February 2008 was subtracted.

The Bank of England bailed out the business with emergency funds in 2007 when money markets froze and investors started the first run on a UK bank for a century leaving the bank unable to gain funding by securitizing its mortgages.

The decision by the Upper Tribunal Tax and Chancery Chamber affirming the valuer’s judgment was published yesterday.

The tribunal judge Nicholas Warren wrote in the final decision: “We have before us no evidence that the Government damaged Northern Rock.”

On the Dexia Bank bailout

Stratfor Vice President of Analysis Peter Zeihan discusses the collapse of the Franco-Belgian bank Dexia and examines its effects on the European debt crisis.

The Franco-Belgian bank Dexia started collapsing Oct. 4, ushering the latest chapter of the nearly 2-year-old European financial crisis. Considering that Dexia is on the list of the top 50 global financial institutions, it is worth examining what happens during a bank bailout and shutdown process and applying that to the Dexia situation.

In minor cases, a cash infusion from a government is usually sufficient to hold the bank over until such time that normal economic growth can help the bank regenerate its finances. Growth has been middling in Belgium since 2008, and Dexia simply hasn’t been able to get out from under the problems caused by its non-performing assets.

In moderate cases, governments come in and take a percentage share of ownership of the bank, putting their own representatives on the bank’s board and forcibly restructuring it. This has already been done for Dexia, too. In the aftermath of that 2008 bailout, Dexia became majority-owned by various governments in France and Belgium.

But the restructuring procedures have not followed what we would consider to be a standard course. Normally, there are major changes at the top and policies are adjusted all throughout to make sure that the sort of indiscretions that led to the bank problems in the first place don’t happen again. Dexia, however, is not a normal consumer or business bank. Instead, much of its business comes from supplying credit to various parts of the Belgian state apparatus.

So when these entities took greater control of Dexia back in 2008, instead of encouraging Dexia to engage in more lending to private enterprise, which might actually regenerate its loan book, they instead encouraged Dexia to invest more in their dead issuances, allowing them to run larger deficits than they would’ve been able to otherwise. Somewhat ironically, the last bailout actually only reinforced the bad policies that had gotten Dexia into trouble the first place.

The final option is some sort of dissolution —typically the bank is broken up into pieces. The good pieces typically find eager buyers who are willing to pay more or less market value. The bad pieces, however, have to be bundled into some sort of bad bank where ultimately they are sold off piecemeal at pennies on the dollar. This is really the only option that is left for Dexia. But there are several problems even with this strategy.

First, any good asset sales right now in the current environment are not going to be bringing what we would consider full market value. Europe is basically in a mild recession at present — it could get a lot worse because of the financial crisis — and European banks have so far proven unwilling to lend much money to each other, much less go out and grab assets from a failed bank and one of Europe’s most debt-heavy states. Which means that the losses that the state is going to absorb when this is all resolved are going to be much higher than they would normally be.

Second, Belgium doesn’t have the money to absorb the losses of the bad bank right now anyway. Belgium already has a national debt of 100 percent of GDP and is having problems raising capital under normal circumstances — much less the sort of large infusion that would be required for a bailout of Dexia. Additionally, under normal circumstances, Belgium would turn to Dexia for financing — that’s obviously not an option anymore, which means, at least in the initial stages, the financial burden is going to be carried by France and France alone — something which will cost Belgium more in the long run.

Third, considering that Dexia is leveraged by a factor of 60-1 (for comparison, Lehman Brothers was only 30-1) and because it’s already 35-percent owned by the state, this is a bank that is going to be suffering far greater losses than normal because it’s extraordinarily damaged.

Dexia has over 500 billion euros in assets and 20 billion of those are government debts of Portugal, Italy and Greece. So let’s assume for the moment that the bailout only costs the Belgian government about 30 billion euros — which we see as fairly conservative. That alone would be sufficient to increase Belgium’s national debt load to 110 percent of GDP, putting them within easy reach of where Italy is right now.

Fourth, Dexia is a leading source of financing for the Belgian government – it’s not there anymore. Belgium is going to have to find another way to raise money on international markets — not just to cover the bailout but to cover its normal activities. That’s becoming increasingly difficult for states that have high debt and low government competency, and Belgium is certainly in that list. It’s now been over 480 days since Belgium has had a government, and last month its prime minister decided that he was going to quit. Added together, Belgium is being pushed very very close to needing a state bailout of its own.

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