Exclusive: Branson Plots Virgin Money Float

Sir Richard Branson's financial services group, Virgin Money, is kicking off preparations for a stock market listing that could trigger a multimillion pound windfall for British taxpayers.

Sky News can exclusively reveal that Virgin Money will in the coming weeks begin the process of appointing advisers to work on an initial public offering (IPO) of the business, which paid nearly £750m to buy Northern Rock from the Government in 2011.

The timing of the flotation has yet to be finalised and is not imminent. It could still be as late as 2015, according to people close to the company.

"This is about getting the right advisory line-up to push the button on a float," one insider said on Wednesday.

If a listing takes place as expected before November (Xetra: A0Z24E - news) 2016, the Treasury will receive a cash payment worth tens of millions of pounds.

According to the statement announcing Virgin Money's takeover of Northern Rock in November 2011, the deal was structured so that "the Government will receive £747m in cash on closing of the sale, plus an expected circa £50m of cash within six months of completion.

A further £150m will be paid in the form of a capital instrument and an additional cash consideration of £50m-80m will be paid upon a future profitable IPO or sale in the next five years. This means the taxpayer has the potential to receive over £1bn in total."

Estimates of the value of Virgin Money vary although some City analysts say it could be worth between £1.5bn and £2bn when it lists on the stock market, depending upon the number and price of any new shares it decides to sell.

The timing of a Virgin Money flotation will be crucial because it will be just one member of a growing queue of British banks seeking a stock market listing.

Sizeable branch networks owned by Lloyds Banking Group (LSE: LLOY.L - news) and Royal Bank of Scotland (LSE: RBS.L - news) , the two taxpayer-backed lenders, are being offloaded under European state aid rules, while Santander UK and the much-smaller Metro Bank have also signalled plans to list in London.

Sir Richard’s group has also been examining a bid for the RBS branches although its interest has waned in recent weeks.

One advantage that Virgin Money appears to have over rivals is that its IT systems have functioned effectively since the Northern Rock takover, whereas some competitors have experienced severe systems problems in recent years. Santander UK pulled out of a deal to buy the RBS branch network last year, blaming IT complications.

Virgin Money, which was established in 1995 as a joint venture between Virgin Group and Norwich Union, the insurance company, has built its profile by taking over the shirt sponsorship of Newcastle United, the Premier League side, from Newcastle-based Northern Rock.

It has since ended that deal but continues to sponsor the London Marathon.

The company opened 1.2m new accounts last year and now has more than 4m customers, according to a spokesman.

Virgin Money already has a heavyweight board befitting the status of a publicly-listed bank, although it may seek to recruit additional independent non-executive directors ahead of an IPO, insiders said.

In 2011, the bank appointed Sir David Clementi, the former chairman of Prudential (LSE: PRU.L - news) and erstwhile deputy governor of the Bank of England, as its non-executive chairman.

Virgin Money is run by Jayne-Anne Gadhia, its respected chief executive and a close ally of Sir Richard.

A successful listing could generate a significant paper windfall for Wilbur Ross, the billionaire US investor, who owns 45% of Virgin Money following a £100m capital injection in 2010 and subsequently helping to finance the Northern Rock takeover.

Last year, it also agreed to buy £465m of old Northern Rock mortgages from UK Asset Resolution, the government-owned body that is running down the now defunct lender’s legacy book.

Virgin Money declined to comment on the timing of a stock market listing or its discussions with prospective advisers.

The preparations for a flotation come at a busy time for Sir Richard's business empire.

Virgin Media (NasdaqGS: VMED - news) has just been taken over by Liberty Global (NasdaqGS: LBTYA - news) , the international cable group, while Virgin Active, the tycoon's health and fitness division, has been mulling a bid for David Lloyd Leisure.

It is now seen as unlikely to table a formal offer for the business but is expected to pursue a flotation in South Africa.

Last year, Virgin Atlantic agreed a partnership with Delta Air Lines (NYSE: DAL - news) aimed at strengthening the British carrier's financial position and future growth prospects.