VIRGIN Money has submitted a bid for some 600 branches being sold by Lloyds, but could drop the offer after it sees Northern Rock’s sales document this week, City A.M. has learned.
The information memorandum detailing the Rock assets on sale is due “imminently”, according to a source familiar with the situation, after George Osborne kicked off the auction in a speech at Mansion House last month.
Virgin is understood to think that the smaller Rock sale could be a better fit, because it already has an IT platform and integrated payments system in place.
If so, the government’s decision to pursue the Rock’s sale now could narrow what is already a small field of credible bidders for the Lloyds auction.
Yesterday’s deadline for initial bids on the branches also saw Lord Levene’s NBNK Investments table an offer, City A.M. understands, with Lloyds set to compile a shortlist of bidders by the end of the month.
However, the sale could yet run into other difficulties if the bank’s forecasts about its branches’ mortgage book prove too optimistic.
The current package has a funding gap of some £30bn, which Lloyds has arranged to have its financial advisers – JP Morgan and Citigroup – cover to the tune of £15-£20bn in bridge loans to the buyer.
But City A.M. has learned that this loan is conditional upon Lloyds’ prediction that the funding gap will narrow naturally to £10bn by the time the sale completes in 2013, due to customers paying off their mortgages.
If the UK economy and housing market fail to live up to expectations, that could endanger the bridge loans, forcing bidders to find another source of funding.
Alternatively, they could bid for a smaller portion of the assets on sale, but that risks upsetting the Independent Commission on Banking, which wants to see Lloyds sell more assets and branches, not less.
All parties declined to comment.