Virgin Money application increases Northern Rock takeover speculation

Virgin Money application increases Northern Rock takeover speculation

Richard Branson's finance arm Virgin Money has applied to the City regulator for a banking licence in a move widely expected to be in preparation for a takeover bid for Northern Rock.

The company said it applied two weeks ago to the Financial Services Authority to gain a licence to sell current accounts and mortgages.

Next week the government will be told if plans to hive off Northern Rock's toxic mortgages into a "bad bank" will be given the go-ahead. The European commission is expected to rule on Wednesday on the plans which would also create a "good bank" with the bank's existing savers and high quality mortgages.

The government is expected to consider selling the good bank to a new player in the banking field to counter criticism that the financial crisis has consolidated the power of the major banks and raised competition concerns.

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Analysts have already speculated that Tesco would be interested in buying Northern Rock to expand its fast growing financial services business. Private equity firms have also expressed an interest in buying distressed assets in the finance sector.

Virgin Money said today it was interested in expanding the business to offer current accounts and mortgages. "From the time we bid for Northern Rock to the present we have had a stated aim to acquire a banking licence and offer our customer current accounts and mortgages. But we have no formal plans at the moment or deals in the pipeline."

Virgin reported pre-tax profits for 2008 up £4m to £24.4m on turnover up from £77m to £98.5m.

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