A virgin chained to a rock

Richard Branson has a name for securing a very good price for himself and on the face of it, he’s got another good deal with Virgin Money’s acquisition of Northern Rock which was announced today.  Virgin Money is paying under £750m and leaving the taxpayer on the hook for a possible loss of £650m since taking the Rock into public ownership. Hopefully the potential additional payments (up to a possible £280m) will be realised to minimise the hit to the public accounts.

That aside though, this is a move to be hugely welcomed. Not only does it secure jobs (no further compulsory redundancies for at least 3 years) and confirm the continued presence of Northern Rock (albeit under a new guise) in Newcastle, it will genuinely bring additional competition to the banking sector, including mortgages.

The great concern was that the Rock would be picked up by an established player – the likes of Coventry and Co-Op were rumoured to have an interest, and Yorkshire Building Society has been on an acquisition frenzy of late. Whilst these are all very good institutions, it always seemed unlikely that one of them simply becoming bigger would do much to increase competition. That concern equally applies to the so-called Verde element of Lloyds, also currently up for sale.

Some commentators (not least our favourite, Robert Peston) have pointed out that relatively speaking ,Virgin Money will still be something of a minnow and unlikely to seriously challenge the big boys for market share. But as far as the consumer is concerned – especially as relates to mortgages – that’s not a major issue.

Small players still give good value. Many tiny building societies offer fantastic value mortgage deals and regularly appear in best buy tables. The likes of Market Harborough, Hanley Economic, Furness, Cambridge etc. have a great record of beating the bigger names on price, policy and service. The amount they lend may be low - measured in millions rather than billions - but borrowers tend not to mind about that as long as they’re getting a good deal.

With this deal Northern Rock remains a standalone operator with a new Virgin Money sign over the door (the process of rebranding to Virgin Money will start in early 2012), and can continue to challenge the mortgage giants – in value if not in scale. Whether it will or not is an entirely other question which only time will answer, but you’d have to bet the Virgin management team will be looking to make a splash in 2012.

Lucky old consumer!

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