The deal represented a loss to the government-owned Northern Rock, at an estimated cost to the taxpayer of £400m.
However in selling the Newcastle-based Northern Rock, the Treasury has off-loaded a hefty liability.
Sir Richard Branson, who owns Virgin Money, said: “We are, with the announcement today of the sale of Northern Rock, starting to get our banking system back into better shape, lending to people, helping families.”
In January last year Northern Rock was split into a “good bank”, which Virgin has bought, and Northern Rock Asset Management – also known as the “bad bank” of closed mortgages and unsecured loans. This remains in Government ownership.
The Government bailed out Northern Rock in February 20008 following its near collapse. It has since injected into it an estimated £4.1 of public money.
Virgin Money batted off other potential buyers, including JC Flowers, for the deal, which includes a £14bn mortgage book, a £16bn retail deposit book and a million customers.
Branson plans to merge the assets with its existing Virgin Money business to meet the Government’s objective of creating a new competitor in Britain’s high-street banking.
None of Northern Rock’s 2100 staff will be made redundant in the deal for at least three years and no branches will close.
David Clementi, chairman of Virgin Money, said: “It is our intention to build a significant banking competitor in the UK and to take that business to the public markets within five years through an IPO”.
Ron Sandler, executive chairman of Northern Rock, said “The return of Northern Rock to the private sector has always been one of our key objectives. We said that this would be done at the right time and when there was a proposition in the best interests of taxpayers and other stakeholders. In addition to delivering value for taxpayers, it brings good news for colleagues, customers, jobs in the North East and the Northern Rock Foundation.”