Virgin MoneyA major assault on Britain's savings and home loans markets helped Sir Richard Branson's Virgin Money return to profit as it gears up for a stock market flotation.

The bank, which bought former failed lender Northern Rock from the government for an initial £820 million, said it returned to profit in the fourth quarter of 2012 and has been profitable every month since then.


Underlying losses for the year to the end of December narrowed to £8.4 million from £59.1 million a year earlier, and it expects to be profitable this year. Virgin Money is now believed to be talking to advisers as it prepares for a potential £1.5 billion to £2 billion float in 2015. It has grown retail deposits to £19.5 billion from £16.2 billion at the start of 2012, while its book of mortgages has expanded to £17.9 billion from £13.9 billion.

Virgin said 1.7 million new customer accounts have opened since the start of 2012, while visits to its branches have increased by 8%. The bank said it is currently the UK's third-biggest mortgage lender, with 31% of the market in 2012.
Chief executive Jayne-Anne Gadhia said Virgin has "focused on bringing real competition to UK banking". "We have been able to provide real support to the UK housing market, surpassing the net lending levels of most of our high street competitors," she said. "Most importantly, we have been able to return the business to profitability."

Virgin acquired a network of 75 branches, a £14 billion mortgage book and retail deposits worth £16 billion when it bought Northern Rock in late 2011. But the failed Newcastle-based lender's multibillion pound book of toxic loans was left in state hands to be wound down.

Virgin said its proportion of mortgages three or more months in arrears stands at 0.37%, compared with an industry average of 1.91%. The bank also has a core tier one capital ratio - a key measure of financial strength - of 18.1%, putting it among the best-capitalised lenders in the UK.

Meanwhile its net interest margin - which measures the gap between its lending profits and borrowing costs - has increased to 1.15% from 0.35% at the start of 2012.

Virgin has paid the Government an initial £747 million, plus a deferred £73 million. Another £150 million is due to be realised in the form of a financial instrument, while up to £80 million will be paid if the business is sold or floated in the next five years. This falls to £50 million if a sale happens in 2016.

This could take the total proceeds for the Treasury to more than £1 billion - less than the £1.4 billion injected by the taxpayer after its collapse in 2007.