He’s no Virgin, he’s private equity in disguise

I confess to some shock that Virgin are the front runner to acquire Northern Rock for many reasons. Whilst Virgin Money has been around for some years, it’s never really made much of an impact on the sector.

Taking over Northern Rock is a completely different proposition for Virgin though. Although the bid is backed by a consortium including AIG, the brand at stake is Virgin’s and keeping the venture afloat will be no easy task without a fundamental restructuring of the balance sheet.

It’s by no means certain this deal will happen though, given that the shareholders, led by two funds that have built up a combined 13% stake, are seeking to instruct/remind the Board to act in the interest of the shareholders, who are almost being overlooked in the whole process.

However, the thing that most astounds me is the easy ride that Virgin is getting, given that it is effectively a private equity business, but which happens to be headed by a populist figure in the form of Richard Branson. The reality is that he is a tax exile living in Switzerland, heading a secretive group that operating behind a series of complex cross holding in offshore vehicles. An attempt by the Economist a couple of years ago to lift the veil of secrecy failed and it is fairly unlikely Virgin will adopt the private equity code of voluntary disclosure – why should they when people aren’t bracketing them as a private equity firm thanks to the excellent PR they operate.

One has to hope that the Bank of England and FSA conduct adequate due diligence on the bidders and their financial stability, rather than simply skip this step in gratitude for someone stepping into rescue them. But perhaps they are also attracted by the possibility that if the bank was to be turned around and Branson made a fortune down the line, the public would think more kindly of that (“what a hero, he deserves the money”) than they would of JC Flowers doing the same.

Still to have a Bank fail once is bad, but to have it fall again would be calamitous.

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