Osborne backing for City big guns' banking swoop

PLANS by two of the most respected names in the City to buy up British banking assets and set up a new high street player have been given the nod by Chancellor George Osborne.

• Levene: Has spoken to George Osborne about his plans. Picture: Getty

Lord Levene, chairman of insurance giant Lloyd's of London, and Sir David Walker have been linked with a project to raise billions of pounds to potentially bid for nationalised lender Northern Rock or branches of Lloyds Banking Group.

The plan, dubbed "project new bank", will heat up competition for the bank assets currently on offer. The venture aims to create a new bank, which would offer retail and SME business banking.

Richard Branson's Virgin Money, National Australia Bank and private equity groups are also in the running to snap up major bank assets.

It is understood the new venture will launch plans for an initial fund raising on the London Stock Exchange next week. The funds would possibly be used to buy a smaller bank business in order to acquire a bank licence, a requirement of the Financial Services Authority.

Once the target is identified, a secondary fund raising will potentially raise billions in order to launch a bid for bank assets within the next 12 months.

It is understood institutional shareholders including Aviva Investors, F&C Asset Management and Invesco have agreed to back the project with "as much as it takes to do the job".

Cenkos, the investment bank, will act as broker and boutique advisory firm Kinmont will be helping Levene and Walker prepare the listing. A source close to the bid vehicle said the new bank would not close branches and would "maintain job levels in the assets acquired".

Disposals of Northern Rock by the government are not thought to be imminent, with ministers indicating that sales are unlikely for 12 to 18 months.

A spokesman for Virgin Money said a sale of Northern Rock's retail banking business before the coalition government's review of the banking system was complete would be "premature".

It is understood Levene would chair the new vehicle while Walker, who led the previous government's review of bankers' pay and corporate governance, would act as a non-executive director.

Levene, who has spoken to the Chancellor about the bid, has been a long-time trusted adviser to Lord Heseltine and also advised former chancellor Norman Lamont and former prime minister John Major.

A Treasury spokeswoman said: "We want to encourage more competition in the banking system. So we welcome the interest of new participants in the sector.

It is also why competition is part of the Banking Commission's remit."

Lloyds, which is 40 per cent owned by government, declined to comment on "speculation", but confirmed that the sale of its 600 branches, which includes Lloyds TSB branches in Scotland and, crucially, a bank licence, would go ahead by the deadline of November 2013. Lloyds was directed by the EU to sell off branches as a result of being bailed out at the height of the banking crisis.

Scottish MSPs welcomed news of the bid, Derek Brownlee, the Scottish Tory's finance spokesman, saying: "Every taxpayer has an interest in seeing the branch sell off succeed, and more competition within the banking sector would be welcomed by customers. Ultimately it's in all our interests to get as many serious bids as possible."

A Scottish Labour spokesman said: "The government must act in the interest of the taxpayer and not just take any offer that comes along."z