State-rescued bank Northern Rock, sold last week to a consortium fronted by entrepreneur Richard Branson, is being asset-stripped to finance its sale, Shadow Treasury Chief Secretary Chris Leslie said in the House of Commons this week.
His intervention followed claims by Chancellor George Osborne that, under European Commission rules, the Government had been obliged to sell off Northern Rock before the end of 2013.
But former Paymaster General Geoffrey Robinson poured scorn on such claims saying that the deadline was unenforceable and could have, in any case, been re-negotiated.
He told MPs early this week that good business sense had been flouted by selling off an unprofitable company just before it was about to start making money for the taxpayer.
The Government insists there were no other viable purchasers for the bank – which received a £1.4 billion capital injection from state funds at the beginning of last year – and that the deal is both good news for high street bank customers and for paying down the deficit.
It emerged last week that Mr Branson, who had led an earlier attempt to buy the distressed bank for a greater sum, lent his face to the £747 million “branded private equity deal”.
US financier Wilbur Ross is paying £250 million and a similar amount is being paid by an Abu Dhabi Sovereign fund.
Mr Ross has already gone on the record as saying that he hopes to flip his investment – which he said amounts to 80 per cent of the bank’s book value – for at least 1.5 times his original spend.
In the Commons Mr Leslie expressed concern that the deal is being part-financed by £250 million of Northern Rock’s own capital reserves in a complicated overall deal which entailed the Treasury underwriting £150 million. This brought so-called “vendor financing” to a new level, he said.
He told MPs it seemed, on closer examination, that the bank’s assets were “being stripped even before it changes ownership”.
Noting the £1.4 billion paid by the taxpayer to recapitalise Northern Rock as it divided it into so-called “good” and “bad” banks, he asked: “With £700 million of excess equity on the balance sheets, why sell for 66 pence in the pound?”
