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Northern Rock Rescue May See 11 Billion-Pound Gain

(Corrects amount in headline.)

The U.K. government may make a profit of as much as 11 billion pounds ($17 billion) by 2027 from its nationalization of Northern Rock, according to U.K. Financial Investments.

UKFI, which manages the government’s bank stakes, predicted a cash return of 46 billion pounds to 48 billion pounds from loan repayments, interest and equity value over the next 10 to 15 years, it said in a statement today. The government has provided 37 billion pounds of funding for the bank, UKFI said.

“In cash terms, the companies are expected to more than repay the original funding provided by the taxpayer,” UKFI said in the statement.

Northern Rock was nationalized in February 2008 after the Newcastle-based lender suffered the first run on a U.K. bank in more than a century. In 2010, Northern Rock Plc, the consumer bank, separated from Northern Rock Asset Management Plc, which holds mortgages.

Billionaire Richard Branson’s Virgin Money Holdings U.K. Ltd. agreed to buy Northern Rock Plc in November for 747 million pounds, marking the first sale of a British government bank holding since the 2008 financial crisis. The sale of Northern Rock Plc left the taxpayer with stakes in Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc and the remainder of Northern Rock and Bradford & Bingley.

The 48 billion pounds is equivalent to an annual return of 3.5 percent to 4.5 percent on the funding provided to Northern Rock. Britain has received repayments of 18 billion pounds from the bank since it was bailed out, UKFI said.

To contact the reporter on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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