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Virgin Plans to Quickly Rebuild Northern Rock

Reuters
Sunday, 18 Nov 2007 | 4:33 PM ET

A Richard Branson-led consortium bidding to acquire ailing British bank Northern Rock plans to rapidly rebuild it, consortium member Wilbur Ross said Sunday.

Ross, a billionaire investor best known for buying and turning around distressed companies, said he would be a "very major equity investor" in the consortium although he declined to specifically state his stake.

"Branson is not a great one for shrinking things - he's a great one for building things. The idea would be to build it up as rapidly as we could," Ross told the Reuters Autos Summit in Detroit.

Ross said the bank would be renamed Virgin Money by the group and would build its deposit base.

He said Northern Rock fell into trouble because it had been too dependent on securitizations and commercial paper -- markets which dried up when the subprime crunch hit.

Under the Virgin proposal, the consortium would immediately repay a significant proportion of a loan from the Bank of England (BoE), the consortium has previously said. Ross said the total owed to the Bank of England had been estimated likely to reach 24 billion pounds ($48 billion) by the end of the year.

A rival proposal for Northern Rock was put forward by Olivant, a team led by veteran troubleshooter Luqman Arnold, which plans the "prompt repayment" of loans from the BoE and would subscribe for a minority stake in the company.

Loan Must be Repaid

Ross said he thought any bid for Northern Rock would have to repay a large amount of the money owed to the BoE to succeed. Any deal that did not pay back the funds would probably run into regulatory problems on grounds that the government was subsidizing a bank, he said.

Ross, traditionally known for tackling restructurings in the steel, textile and coal industries, is also making a bet on the U.S. mortgage market.

He said he had completed the purchase of the loan servicing unit of bankrupt American Home Mortgage Investment Friday for about $500 million. He said he aims to double or triple the loan servicing portfolio. The unit is currently handling a little over $40 billion in mortgages, he said.

That expansion could be achieved without a sizeable increase in overhead or capital expenditure, by buying a series of smaller portfolios, he said.

American Home had been the 10th-largest U.S. mortgage lender before filing for Chapter 11 bankruptcy protection on Aug. 6. More than a dozen U.S. mortgage lenders have gone bankrupt this year, including several "subprime" lenders that provided loans to borrowers with poor credit.

American Home catered to people with better credit. It collapsed after investors stopped buying most home loans, including American Home's, apart from those they deemed safest.

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