Bank buyers circle as Rock splits off unit

THE race to snap up the good assets of Northern Rock heated up yesterday, with Virgin Money and National Australia Bank (NAB) emerging as the frontrunners.

Clydesdale and Yorkshire Bank owner NAB is understood to have held meetings with potential advisers including Lazard, Citigroup, Credit Suisse and Morgan Stanley ahead of a potential bid for the lender’s savings and mortgage business.

Meanwhile, Virgin Money, which tried to buy Northern Rock before it was taken into the government's arms in early 2008, is looking into a £50m deal to buy a small British bank in the coming months.

Sir Richard Branson’s financial arm has applied to the Financial Services Authority (FSA) for the banking licence it needs to pursue its retail banking ambitions. This is expected to be approved in the next three months.

Northern Rock has now been formally split into a “good bank” and a “bad bank” following its restructuring last year. The new savings and mortgage bank, named Northern Rock, received FSA authorisation on 1 January. This holds savings balances of around £19bn and has around £10bn of low-risk residential mortgages.

The bad bank, named Northern Rock (Asset Management) and chaired by Bradford & Bingley’s Richard Pym, has a residential mortgage book of about £50bn and £4.5bn of unsecured personal loans. This will remain in government hands and will no longer offer new mortgages. Northern Rock yesterday said 90 per cent of its mortgage book was not in arrears.

Gary Hoffman, Northern Rock’s chief executive, said: “I am pleased to announce that we have successfully completed the legal and capital restructure of the business. This helps to build a stronger future and delivers value to taxpayers.”

The government has been keen to introduce new players into the banking sector to boost competition. NAB is one of the biggest financial institutions in Australia with 8.3m consumer and business clients across 10 countries. It could also increase its UK presence by bidding for branches being sold by RBS and Lloyds.