Martin Flanagan: Rock sale is first step, but only that, in reshaping of UK bank landscape

THE sale of Northern Rock to Sir Richard Branson’s Virgin Money is a welcome first step in getting the taxpayer off the banking sector hook. It looks like the taxpayer will take a £400 million hit from the transaction, but it is probably the best possible financial outcome in the fragile banking and economic climate.

The state pumped £1.4 billion into Northern Rock after it collapsed in 2008 under the weight of its own fanciful ideas of lending (125 per cent mortgages, anyone?) and over‑exposure to the wholesale funding markets. By contrast, Branson and his backers will only give the UK government a maximum of £1bn to take the bank off its hands.

In reality, the alternative of a stock market flotation at this stage of the so‑called “good” Northern Rock mortgages and deposits business was soon not a runner. Both the losses it is still making and volatile financial markets mitigated against that option even though Virgin Money has said it is looking to float at some future juncture.

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The reputedly low‑ball offers for the 600 Lloyds Banking Group branches on the auction block from the Co‑op Bank and industry consolidation vehicle NBNK Investments shows bank assets are not flavour of the year, never mind month.

At least the sale to Virgin is a manifest marker in getting over the high street banking implosion that saw queues round the block wanting to withdraw their money from Northern Rock, and Royal Bank of Scotland and Lloyds taken into semi‑public ownership. And Branson has an enviable track record of brand recognition among the public that could do well once the tainted Northern Rock name is consigned to history.

Meanwhile, the “bad” Northern Rock (called Northern Rock Asset Management), which holds the toxic loans and mortgages, stays in government ownership, but is no drain on the taxpayer as it is both profitable and in run‑off as the loans are paid back.

Yesterday’s development allows the government and its arm’s length agency, UK Financial Investments, to focus on eventually trying to sell off the taxpayer’s 83 per cent stake in RBS and 41 per cent stake in Lloyds.

However, we shouldn’t get carried away by thinking the Rock sale will mean speedy taxpayer exits from those two banks.

Lloyds and the Royal are much bigger and more complex businesses to restructure and turn into sustainable profit, and the state is still sitting on tens of billions of pounds worth of losses given those banks’ market share prices compared to the prices the taxpayer bought in at.

In short, amid the gradual return of the banking landscape to completely private ownership the Rock sale is a symbolic milestone, but no game‑changer.

Christmas may prove a mixed blessing for the high street

THEY say Christmas comes earlier every year. The latest retail sales figures from the Office for National Statistics (ONS) bear this out, with a surprise lift in October confounding City expectations.

High street sales rose 0.6 per cent last month after a 0.5 per cent rise in September, against a consensus forecast for a 0.2 per cent decline.

While any good economic news is welcome these days, retailers will not get carried away. The ONS says October’s rise was largely driven by widespread retail discounting in the run‑up to Christmas.

Retailers could therefore pay the price for this good news with less pronounced sales rises in December as shoppers may have got a lot of their Xmas bargain‑hunting done already.

A trend in recent years has been consumers getting their festive presents bought before Christmas, but holding off for the big cut‑price sales from Boxing Day onwards.

If that were the case again, we might well see lacklustre December trading squeezed between the fillip from autumnal price wars and a post‑Christmas sales bounce.

Will non-sporting visitors to London bolt from the madness?

WILL next year’s summer Olympics be a short‑term boom for the economy? I’m not so sure. For all the locals and tourists eager to see if Usain Bolt can go a bit faster than extremely fast, many others will be put off by the brazen profiteering of everybody from tube workers and taxi drivers to hoteliers and people renting out their private homes to overseas visitors.

Meanwhile, non‑sporty overseas visitors may see next summer as the worst time to visit London as the English capital is given over to Olympics hoopla and travelling disruption.

Instead, we could see a cancelling out effect: Olympics visitors providing an economic fillip offset by those who think it will be better to give the whole show a miss.