Tesco tipped to buy Northern Rock after bank is broken up

Published on Wednesday 28 October 2009 21:19

NORTHERN Rock is to be broken up, fuelling speculation that part of the nationalised bank could be bought by Tesco as the supermarket makes inroads into the financial services sector.

Yesterday, European Union regulators approved a UK government plan to break up the state-owned lender to clear the way for the sale of parts of the bank, which benefited from Gordon Brown's 1.3 trillion bank bail-out.

The bank will be split in two with one business, Northern Rock plc – which will be known as the "good" bank – being left in charge of savers' money, carrying out new lending and holding existing mortgages.

A second, "bad" bank, known as Northern Rock Asset Management, will repay outstanding government loans.

The move came as Tesco announced it was opening a new customer services centre, with the creation of 1,000 jobs, in Northern Rock's heartland of north-east England.

Read Terry Murden's analysis of this story here

The timing of the two announcements led to more speculation that Tesco is poised to buy the Rock, a move that would give the supermarket giant's new banking arm a stronger presence in the high street.

However, when contacted by The Scotsman, Tesco Personal Finance chief executive Benny Higgins said the jobs announcement was "unequivocally unrelated" to yesterday's announcement about Northern Rock.

Mr Higgins would not disclose if Tesco had talked to the government about buying the "good" part of Northern Rock.

For some time, Tesco has been touted as a potential buyer of Northern Rock, along with Virgin Money and National Australia Bank.

Clive Black, an analyst with Shore Capital Stockbrokers, said: "I can understand the basis for this speculation.

"There is concern about the magnitude of the centralisation of Britain's banks – Barclays, Lloyds and RBS. Policy-makers want to see more lenders and more competition.

"Tesco and Virgin are the two most likely players when it comes to increasing that competition and the government is very keen to try and sell the good part of Northern Rock." The EU's decision on Northern Rock will also pave the way for the partial break-up of Lloyds Banking Group and RBS.

The European Commission said it did not know when it would be taking a decision about their futures. Reports have suggested that Lloyds will spin off its Cheltenham & Gloucester business.

RBS is expected to sell its old Williams & Glyn brand.