Richard Branson to fly away with Northern Rock…

The entrepreneur hungry Richard Branson has returned to bid for Northern Rock again, after failing first time round in 2007.

 

This week saw transport mogul Richard Branson spark rumours of a possible attempt to purchase Northern Rock when Virgin Money applied to the Financial Services Authority for a banking license. Is it just a rumour or is Virgin set to dominate another British industry?

 

Not so lucky first time round -(Reuters- ‘Virgin applies to FSA for banking license)

 

In a report from Reuters UK they reflected on the rumour that is causing controversy in the press this week. Virgin Money, a company that provides credit cards, insurance and mortgages tried to purchase Northern Rock back in 2007. At the time a confident Branson promised to pay off Northern Rock’s ‘£11billion bank loan immediately, and the rest within three years’ (The Economist).  However, Branson’s wishes were blown out of the window when Northern Rock was forced to accept government support when early signs of a recession started to emerge in late 2007. Since, a takeover bid from Virgin Money has never been mentioned…

 

Two years on and Branson has “itchy feet” again- (The Times- ‘Virgin Money signals new move for Northern Rock)

 

With an eventful two years for the global financial economy hopefully coming to an end, it would seem apparent that Richard Branson, and Virgin Money chief executive Jayne-Anne Ghadia, are timing another attempt to buy Northern Rock nicely with the predicted start of economic recovery.  In ‘The Times’ this week reporters referred to Virgin Money as being one of the biggest players in mind for Northern rock. The bank, which is currently controlled by the European Commission, is said to be selling off “the good bits” of Northern Rock to other banks including Lloyds TSB and Royal Bank of Scotland.

 

The article goes on to tell of the issues that Virgin Money faced previously in 2007, which included the fact that the Treasury for northern rock feared that, at the time, Virgin lacked the required experience to take on the fifth biggest mortgage provider in Britain.  Since then Virgin Money have “upped their game” by employing Sir Brian Pitman who previously run Lloyds TSB.

 

Has Virgin Money got what it takes? – (The Telegraph- ‘Sir Richard Branson to launch ‘Virgin Bank’)

 

Banking editor Phillip Aldrick comments that Britain could fear , ‘ an aggressive’, competitor if Virgin Money is granted a full banking license from the FSA. Although the process can take up to six months to be finalized, bankers are already commenting on Virgin’s plans to launch an online bank allowing customers to make online mortgage applications. Jayne-Anne Gadhia has always openly declared that Virgin Money would be interested in any banking opportunities that come up for sale. This is what is fueling the belief that they are applying for the banking license for a potential Northern rock takeover.  It would seem that the UK “banking world” feel threatened by Branson’s potential power and might possibly hoped that their banking license application is refused.

 

In spite of this, Virgin Money continues to express a healthy position with over 200 employees and an increase to £24million in profit in the year to December 31^st 2008. Although only minimal, could one argue that Branson’s entrepreneurial success will be the driving brain of this new venture?  Or should Virgin stick to planes and trains?

 

If the rumour is true…does the idea of ‘Virgin Bank’ sound plausible?

 

In conclusion to the debates that have been going on in the press this week, I would say that on the basis of Richard Branson’s existing success, Virgin Bank is extremely plausible. However, based on the current status of the financial crisis I am inclined to think that right now Virgin might be trying to “fill some very big shoes” as after all, it is the transport industry that they thrive at, not banking. On the other hand, a small part of me believes that Branson is doing what any other wise, cash-ready entrepreneur would do – snap up a good opportunity!

Articles read:

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6418584/Sir-Richard-Branson-to-launch-Virgin-Bank.html

http://www.economist.com/world/britain/displaystory.cfm?story_id=E1_TDNTVDRS

http://uk.reuters.com/article/idUKTRE59M36D20091023TimesOnline

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6888182.ece