LONDON (AP) - The British government said Thursday it is selling mortgage lender Northern Rock, the nation's first victim of the credit crisis, to Virgin Money, owned by billionaire Richard Branson's Virgin Group.
Virgin Money is paying 747 million pounds ($1.2 billion) on closing but there are provisions for the government to receive up to 1 billion pounds in total, the Treasury announced. Virgin Money has promised that it will not lay off any more employees and will maintain the full branch network for at least three years.
"It was clear to us that this was the best deal for the British taxpayer, we were getting more money back than any other deal on the table," said Treasury chief George Osborne.
He said the sale would also increase competition in the British banking sector, which is dominated by four large banks.
Northern Rock's funding crisis in late 2007 gave Britain shocking images of desperate depositors lining up to withdraw their money from the company. The government nationalized the bank in February 2008, and guaranteed the security of savings deposits.
The sale includes 75 branches and 2,100 staff, 1 million customers, retail deposits of 16 billion pounds and a mortgage book of 14 billion pounds.
Virgin Money was founded in 1995 and has around three million customers. The purchase of Northern Rock is funded by a consortium led by Virgin Group and W.L. Ross & Co., a turnaround specialist.
"Banking in the U.K. needs some fresh ideas and an injection of new competition," Branson said. "I'm delighted we will get the chance to work with the loyal staff of Northern Rock to create a new force in the market."
Before the bank was nationalized, Virgin Money had made an offer in 2008 to take over Northern Rock but it was rejected by the government as too risky and too expensive.
The sale includes provisions for an addition 50 million pounds cash to be paid to the government six months after completion, and up to 230 million pounds if there is a profitable flotation or sale within five years.
The government last year split Northern Rock into two businesses: Northern Rock PLC, which Virgin Money is buying, and Northern Rock (Asset Management) PLC which holds a portfolio of the riskiest loans.
The government plans to wind down the asset management unit over time to repay 50 billion pounds advanced by the Treasury.
Northern Rock proved to be just a small part of the government expenditure to save the banking sector from collapse. Taxpyaers still hold 83 percent of Royal Bank of Scotland and about 40 percent of Lloyds Banking Group.