Why Northern Rock sale at a loss is in the interest of the UK

There has been much discussion in the UK about the recent agreement to sell the state owned Northern Rock to Virgin, at a loss to the British tax payer of between £400mil and £650mil.

For those who don't know, Northern Rock was the British bank to go belly-up in 2007. It was the first time a bank run has been seen in England since 1866. Since then, no bank has failed and led to a run in the way Northern Rock did.

The government stepped in to prevent a spread of the localized collapse, and Northern Rock became a business owned by the British public.

This year, the government agreed to sell the Northern Rock to Virgin, but that we are expected to loose out in the deal.
Obviously, many are screaming about the fact that we are selling this bank at a loss of up to £650mil.

However, our government states that this is the best deal for the public.

How could this be?

I have a theory about this.

What would happen if, say, the Euro collapsed entirely while this bank was in the ownership of the UK government? If the British people own Northern Rock, and the Euro currency fails, what would that mean to the British people and how much risk would the UK government face?
Potentially more than £650mil I'm willing to bet.

I've been looking into the exposure Northern Rock might have to the Euro, but it's proving very difficult. I have located the following statement, which is only one opinion,

The stronger banks that would survive a series of PIIGS defaults for at least some time are HSBC and to a lesser extent Barclays. There is also the government run National Savings bank that would remain secure for the duration of a banking crises, though the government owned Northern Rock would probably not be 100% secure and thus deposits there would also suffer to a similar extent of only being guaranteed to £85k.

So, what does everyone think? Has the UK government agreed to sell Northern Rock to Virgin at a loss because they know that ownership of it when the Euro collapses will be considerably more costly? And does that mean that Virgin has considered the risk and deemed it worth taking, or perhaps they have the funds to manage NR even after a collapse?

reply to post by detachedindividual


Is the fuss not really about the banks assets being divided into 'good and bad' with the good being sold to Branson...who will see a healthy return within two years ie £4 billion.

Originally posted by midicon
reply to post by detachedindividual

 

Is the fuss not really about the banks assets being divided into 'good and bad' with the good being sold to Branson...who will see a healthy return within two years ie £4 billion.

thats exactly why its being sold son ((its going to turn a profit soon and the goal is to bankrupt britian))

Originally posted by midicon
reply to post by detachedindividual

 

Is the fuss not really about the banks assets being divided into 'good and bad' with the good being sold to Branson...who will see a healthy return within two years ie £4 billion.

Not if the Euro collapses.
Surely Northern Rock is one of the weakest banks in the UK, is the government is expecting to see the Euro collapse, anything branded with Northern Rock will probably see a run within an hour.

While they might be able to stave off a run on other banks in the UK, it's likely that the name Northern Rock will automatically lead people to believe that it is the weakest, and therefore a run would cause its collapse.

What I mean is, has our government sold it before the Euro dies because they know of the precarious position it will be in? Technically, they might have saved the tax paying public billions more by selling a weak and vulnerable asset that might otherwise cause a larger collapse when the € crumbles.