DEALTALK-Lloyds branch bidders may also target Northern Rock
(For more Reuters Dealtalks, please double click on )
* Bidders may look to buy Lloyds' branches and N.Rock
* Selling both assets to one player may suit UK and Lloyds
* Assets may attract attention of Qatar, foreign banks
* Private equity firms likely to have a look as well
By Sudip Kar-Gupta
LONDON, June 20 (Reuters) - Bidders targeting the 600 branches being sold by Lloyds Banking Group might view it as the opening salvo in a campaign leading to a bid for nationalised bank Northern Rock .
Last week, Virgin Group head Richard Branson said Virgin Money would consider bids for both Northern Rock and the Lloyds branches, which Lloyds has been ordered to sell by regulators as payback for taking a state bailout during the credit crisis.
New bank venture NBNK has expressed an interest in both assets, while the likes of National Australia Bank UK and supermarket retailer Tesco's banking arm are also seen as contenders.
Analysts said it could make sense for interested parties such as Virgin Money and NBNK to look to snap up both assets.
Whoever buys the Lloyds branches would have to tackle funding problems associated with those assets, but that could be solved by buying Northern Rock and using Northern Rock's deposits and infrastructure to plug that funding gap and iron out any software integration issues.
"If NBNK or Virgin were to buy the Lloyds branches, it would give them the incentive to then buy Northern Rock," said Mediobanca analyst Christopher Wheeler.
"Northern Rock is an infrastructure machine, and they've got deposits," he added.
BROAD SHAKE-UP
The disposal of the Lloyds branches and Northern Rock are part of a planned broader shake-up of Britain's banking industry in the wake of the credit crisis. Analysts say the Lloyds assets could be worth about 3 billion pounds ($4.8 billion), while Northern Rock could fetch 1 billion.
Along with having to fully nationalise Northern Rock during the crisis, Britain also had to bail out Royal Bank of Scotland and Lloyds , finishing up with an 83 percent stake in RBS and a 40.6 percent holding in Lloyds.
Britain's Independent Commission on Banking (ICB), set up last year to examine reforming the sector, proposed in an interim report in April that Lloyds should sell more than 600 branches to boost competition in the industry.
Northern Rock Bank Customers Money - News
The group was not interested in buying branches being sold by Lloyds (LLOY.L) and was very unlikely to bid for nationalized bank Northern Rock, he said. Tesco announced plans to set itself up as a bank in 2008 when it bought out Royal Bank of Scotland
When Northern Rock was split in half, into what was termed a 'bad bank' and a 'good bank', UKAR took the bad part. It also took customers from Bradford & Bingley, another bank effectively nationalised, though once again some 'good bank' assets were
The appointment comes as Virgin Money readies a bid for some of the Northern Rock and Lloyds Bank branches that have been put up for sale. It is thought that the Sir Richard Branson fronted bank is in talks with potential investors.
The UK injected about GBP1.4 billion ($2.3 billion) of taxpayer money into Northern Rock and it is unlikely the sale of the bank would result in a profit. Branson's blog post also reaffirmed Virgin Money's interest in the 600 branches being sold by
LONDON, June 20 (Reuters) - Bidders targeting the 600 branches being sold by Lloyds Banking Group might view it as the opening salvo in a campaign leading to a bid for nationalised bank Northern Rock . Last week, Virgin Group head
Northern Rock – Shareholders Are Not Seduced By Virgin
The future of Northern Rock, the beleaguered UK bank still remains uncertain after the deadline of 4 February 2008 for bids from interested parties.
The UK government is seeking to convert the estimated GBP25 billion of loans into bonds which will be sold in the open market. In order to make these bonds attractive, the government will guarantee them.
It has now emerged that in addition to requiring a fee for the guarantee, which could be as much as GBP400 million, the UK government is insisting that the guarantee is limited to 3 years. This means that the bonds will only have a 3 year life, and at the end of that time they will need to be replaced by alternative funding.
In practice, Northern Rock will have to seriously downsize, if not decimate, its mortgage portfolio. It can only achieve this target by actively encouraging mortgage holders to migrate to other bank and building society lenders.
Due to the severity of this requirement by the government, one of the bidders, Olivant, has pulled out.
This leaves 2 proposals on the table for Northern Rock.
The offer from Sir Richard Branson, of the Virgin group, is considered to be the front runner. Virgin’s offer is complex and involves merging Northern Rock into Virgin Money.
Northern Rock currently has 420 million shares in issue. Existing shareholders will be asked to subscribe to a rights issue and purchase 6 new shares at 25 pence for each share they currently hold. This equates to GBP1.50 x GBP420 million which equals GBP630 million of new money.
Total shares held by existing shareholders will then be 420 million times 6, which equals 2,520 million, plus the original 420 million, which equals 2,940 million shares.
Virgin proposes that there will be 6,600 million shares. The current shareholders will hold 2,940 million while Virgin will hold 3,660 million. This means that the existing shareholders will see a dilution of their combined stake to 45%, while Virgin holds a majority 55%.
Virgin will purchase 2,600 milllion shares at GBP25 pence which equals GBP650 million. In addition, they will receive a further 1,000 million shares as Virgin Money will be merged with Northern Rock. This values Virgin Money at GBP250 million and most commentators consider this a highly inflated figure.
What this means is that Virgin is acquiring Northern Rock for a cash payment of GBP650 million. When one considers that Northern Rock has some GBP100 billion of assets, is one of the top 5 UK mortgage lenders with a market share of 20 percent, this seems a most attractive deal for Sir Richard Branson.
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