Forbes analysts explain that the mortgage crisis of 2007 had forced Northern Rock to turn to the Bank of England for liquidity support to meet short term debt obligations and unable to an acceptable offer from the private sector, Northern Rock was eventually nationalized on February 17, 2008.

Now, the British Government is selling Northern Rock plc to Sir Richard Branson’s Virgin Money for £747m. Completion of the transaction is expected on 1 January 2012.

The official announcement states that “The sale is in the best interests of the taxpayer, secures the long-term future of the company and will increase competition in the banking sector. This is part of the Government’s wider strategy for the banking sector with safer ring-fenced banks and more competition for customers.”

As part of the sales agreement Virgin Money has committed to:
• No further compulsory redundancies, beyond those already announced, for at least three years from the completion of the transaction.
• Retaining and expanding the total number of branches currently operated by Northern Rock.
• Extending support for the Northern Rock charitable foundation for a further year.
• Making Newcastle the operational headquarters for the combined business.

According to the press release from Virgin Money the transaction will create a significant new competitor in UK retail banking and, in doing so, it will help increase diversity in the retail banking sector as Virgin Money seeks to innovate and expand into new market segments.

Virgin Money stated that the transaction has the potential to eventually raise more than £1bn for the taxpayer in the long term along with numerous other benefits including the return of public sector stakes in banks to the private sector.

Sir Richard Branson, Founder of the Virgin Group said: “Banking in the UK needs some fresh ideas and an injection of new competition. I’m delighted we will get the chance to work with the loyal staff of Northern Rock to create a new force in the market. Virgin has a history of entering new sectors to improve service and provide value for customers. We plan to do the same in banking”.

While many analysts have commented positively on these developments others are skeptical and some have warned that Virgin Money products must become more competitive in order to revitalize the stagnant banking market.

Adrian Coles, director general of the Building Societies Association, said that Northern Rock’s sale was a “bittersweet moment” with both positive and negative effects on the market.