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Northern Rock Rescue May See $17 Billion Profit for U.K.

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, England-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 left the taxpayer with stakes in Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc and the remainder of Northern Rock and Bradford & Bingley.

Remutualization Considered

A return of 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.

Deutsche Bank AG was paid 1.8 million pounds for its advice on the sale of Northern Rock Plc, UKFI said. The payment compared with costs of as much as 7 million pounds proposed by other potential advisers, UKFI said.

UKFI said Deutsche Bank assessed several options for Northern Rock Plc, including a re-mutualization worth between 415 million pounds to 437 million pounds, which was about less than half of the Virgin Money offer.

In total, UKFI said it expects a total return of 95 billion pounds to 97 billion pounds from its wholly owned units, including Bradford & Bingley Plc, without specifying a time period. The U.K. government provided 64 billion pounds of funding into Bradford & Bingley, Northern Rock plc and Northern Rock Asset Management plc.

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