'King of Bankruptcy' takes 21% stake in Virgin Money

Published on Sunday 4 April 2010 21:55

WILBUR Ross, the billionaire US turnaround specialist, has bought a 21 per cent stake in Sir Richard Branson's Virgin Money for £100 million as the group prepares to make a major assault on the UK banking market.

&#149 Wilbur Ross

Ross, nicknamed the "King of Bankruptcy", is also prepared to pump in "hundreds of millions" more to fund acquisitions, including Virgin's 2 billion bid for 318 Royal Bank of Scotland branches.

Virgin will join Clydesdale Bank owner National Australia Bank and Santander in submitting a bid for the RBS assets ahead of tomorrow's deadline.

The branch network, which RBS is being forced to sell off to comply with European competition rules, has also attracted interest from Spanish bank BBVA and private equity firm JC Flowers, which are both understood to have conducted due diligence on a potential bid.

Other contenders linked to a possible offer include Sweden's Handelsbanken and France's Credit Agricole.

However, Ross has given the green light to "organic" expansion at Virgin even if its RBS bid fails. The firm – which is headed by former RBS banker Jayne-Anne Gadhia – plans to open 70 high street branches by 2015, building assets of more than 10bn.

Virgin gained a foothold in the banking market earlier this year when it bought the little-known Church House Trust for 50m. The acquisition gave it access to a banking licence.

One source yesterday told The Scotsman: "Wilbur Ross has signed on the dotted line for both organic growth and potential acquisitions."

Ross's backing will give Virgin some much-needed clout in the auction process after its bid for Northern Rock two years ago was rejected by the UK government amid concerns that it could not raise sufficient funds.

Sources close to the situation say that Ross's seal of approval has also seen other potential investors come knocking on Virgin Money's door. Virgin is currently in talks with a number of private equity firms about a potential cash injection.

The deal with Ross will also probably see Virgin enter the race for other banking assets over the next couple of years, including the forced sale of some of Lloyds Banking Group's high street branches and the "good bank" element of Northern Rock.

Ross, who will sit on Virgin Money's board, expressed an interest in backing Virgin's previous bid for Northern Rock in 2007.

The billionaire has built a reputation on Wall Street for buying up firms on life support and selling them for a staggering profit just a few years later.

Previously at Rothschild, Ross has since 2000 been running his own investment fund, WL Ross & Co, which in 2002 bought the bankrupt steel firm LTV for $325m (about 214m) and sold it in 2004for $4.5bn.

He also sits on the board of Arcelor Mittal, the metals behemoth owned by Britain's richest man, Laskshmi Mittal, and has advised former US president Bill Clinton.

The deal with Virgin will raise the stakes in the battle for the RBS branch network, 312 of which are in the south and north west of England. The package includes six NatWest branches in Scotland.

The City is expecting the assets to be hotly contested as they come with 1.8 million retail customers, 230,000 small business customers and 1,200 mid-sized corporate customers.

Once separated from RBS, it is estimated the business will be the sixth largest commercial and retail lender in the UK.

One analyst said: "It is a very good retail and business banking franchise that has come up for grabs. That does not happen very often. It would be all but impossible to grow that sort of scale this quickly organically."

However, the winning bidder will also need deep pockets as there is a 1.5bn funding gap between customer deposits and the network's 24bn commercial loan book. Analysts say this will disadvantage some of the smaller, less-established bidders, including Virgin.

NAB board members are understood to have approved a bid for the RBS branches at a board meeting in Melbourne last Thursday.