The banking crisis: Northern exposure

Unless you’ve been living under a (Northern) rock for the past few months,
you’ll know that one of the UK’s leading banks was saved from possible ruin
after the Bank of England was told to bail the mortgage lender out by a panicked

The UK’s central bank duly provided a ‘liquidity support facility’ i.e.
almost £25bn of taxpayers’ cash to shore up the Rock.

What’s happened
Bidders have been cricling the Rock for several weeks now. There has been
interest from the other side of the Atlantic in the shape of private equity
group JC Flowers, while Guernsey-based investment company Olivant has been in
talks with Rock shareholders about a possible offer, but the Virgin Group was
granted preferred bidder status with CEO chartered accountant Jayne-Anne Gadhia
at the helm.

What’s going to happen
Gadhia will be under the microscope now that Virgin’s advances have been made
public. She is at the forefront of Virgin’s efforts to put £200m into a £650m
consortium bid for the bank before asking existing shareholders to spend a
further £650m. This will buy a 45% cent stake in the enlarged company.

Despite winning the preferred bidder tag, it will be by no means plain
sailing for Gadhia from here on in.

Her plans might be affected by hedge fund SRM Global, Northern Rock’s largest
shareholder, which upped its stake to 9% at the end of November. The hedge fund
may be looking to increase its ability to keep the fate of the Rock firmly in
its hands.

Other investors may be looking to scupper Virgin’s bid after claiming the
company had undervalued the Rock, and making calls for the door to be left open
for other suitors.

Rival bids and activist doom-mongering aside, Gadhia has the requisite
experience to be able to do a good job at the Rock if Virgin’s bid is
successful. Before taking up her role at Virgin Money, she was the Royal Bank of
Scotland’s mortgages MD.

With all her experience, there is no doubt that Gadhia will be entering the
big leagues if she is put in control of the combined business. Virgin Money
employs 240 staff and presides over £200m of turnover, while the Rock has 6,000
staff and made £600m in profit in 2006.

Judging by the fact that the Rock has already proposed that Gadhia be
appointed as an executive director, the smart money would be on the E&
Y-trained chartered accountant being crowned the new chief exec.

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