Northern Rock: Is Virgin bid a relief?

There is no doubt that Sir Richard Branson will pull off something of a coup if he acquires Northern Rock.

Before the crisis erupted, taking over Britain's fifth biggest mortgage lender would have cost him £5.2bn. Now he could get it for slightly less than £1bn, including £650m of Virgin group cash.

But today's Northern Rock is very different from the one of a few months ago. Then, it was riding high, aggressive, expanding at a rate of knots. Today, it's a national laughing stock, discredited, a brand that is finished.

Branson, though, would still get two million customers and a massive mortgage book.

The boost it would give to Branson's finance arm — Northern Rock would be quickly renamed Virgin Money with a branch on virtually every high street and a large headquarters operation in Newcastle — is enormous. That's what Branson wants to buy.

He isn't doing this out of the goodness of his heart — he's doing it to make money. We may laugh at Northern Rock — but make no mistake, he badly wants to own it.

By injecting some of his own company money and issuing new shares at the same terms that he is subscribing to them, Branson hopes to head off criticism — effectively inviting shareholders to believe in his vision for their stricken institution.

However, a public reeling from the vast profits enjoyed by the buyers of Qinetiq from the Government must be wary of repetition.

And Branson has form for dealing with ministers and coming out on top — look at how his Virgin Trains have reaped the benefit of the state upgrading the West Coast Line.

Questions remain about the Virgin proposal. On paper, his management team is not as strong as that assembled by JC Flowers, the other leading bidder.

Jayne- Anne Gadhia, the chief executive of Virgin Money and Branson's choice of boss for Northern Rock, does not have a heavyweight, international banking pedigree — she launched the Virgin One mortgage and when that was sold to Branson's joint venture partner, Royal Bank of Scotland, she left to join them.

She may be a trusted Branson lieutenant but she is untried at running, and more importantly turning round, an organisation of this magnitude.

Under the plan, Virgin will repay £11 billion of Northern Rock's debt straightaway. It will still owe a further £11 billion to the Government, to be paid back over several years. The major doubt has to be what will happen if the UK housing market takes a tumble and the new, much enlarged Virgin Money bank, can't make its repayments.

Whatever serious misgivings ministers and officials might have about the sale are more than tempered by relief at being seen to solve the embarrassment of Northern Rock.

Whether they will feel the same way if Branson goes on to make even more millions and it turns out he got the bank for a song, or they have to mount a second, excruciating rescue remains to be seen.