Between the Rock and a hard place: Osborne should be grateful that the government did not lose more

GEORGE Osborne was never going to please everyone with the sale of Northern Rock’s “good bank”.

The criticisms came in thick and fast yesterday: he didn’t mutualise it, he sold at a bad time, he swallowed a huge loss.

Many in the City were simply glad to see a deal done at all.

Not least executives over at troubled rival Lloyds, which is struggling to offload the 632 branches it must sell due to EU competition law.

Analysts at Credit Suisse were quick to speculate on what it could mean for the deal, suggesting that Virgin’s high capitalisation of the business “could imply Lloyds will have to provide more capital alongside the disposal”.

More striking is the price the government received. At the end of the summer, potential rival bidders such as JC Flowers were valuing the Rock at a maximum of £850m and since then, economic conditions have only worsened.

But the £747m-£1bn price range means that the government will get at least 0.8 times the Rock’s book value, whereas Lloyds current trades at around 0.6 times.

The Lloyds branches, however, started with a funding gap of some £30bn, which the bank has been forced to narrow to lure bids. The Rock, by contrast, has a £2bn surplus, with £16bn of deposits.

The excess liquidity could prove unprofitable, but for an investor trying to enter the banking industry during a debt crisis, having a little extra cash to play with is worth a lot.