Northern Rock 'to return £11bn profit to taxpayer'

Northern Rock plc will be rebranded as Virgin Money

Northern Rock is expected to return a profit of up to £11bn to the taxpayer over the next 10 to 15 years, the body which manages the government's bank investments has said.

The government provided £37bn of funding to bail out the two companies that comprise the former Northern Rock.

UKFI now says that the return of cash from the two companies is expected to total between £46bn and £48bn.

Northern Rock was nationalised in 2008 after struggling in the credit crunch.

After experiencing funding problems when banks stopped lending to each other in 2007, the Newcastle-based lender suffered the first run on a British bank in more than a century.

It was later split into two, Northern Rock plc and Northern Rock (Asset Management), into which was placed its bad debt.

In November 2011, the government announced the sale of Northern Rock plc to Virgin Money for £747m.

UKFI said that the expected cash return included the recent sale, as well as loan repayments, interest, guarantee fees and the winding-down of Northern Rock (Asset Management).

"This means that, in cash terms, the companies are expected to more than repay the original funding provided by the taxpayer," UKFI said.

"However, this cash is expected to be returned over a period of around 10 to 15 years from 2012 as Northern Rock (Asset Management) plc is run down and the remaining government loan is repaid.

"This is equivalent to receiving an annual rate of return on the government's intervention of 3.5% to 4.5% per year and compares to the government's estimated notional annual funding costs during the period of intervention of 3.9%."