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The Treasury's revealed Newcastle bank Northern Rock is being sold to Virgin Money in a £747 million deal.
The takeover of the Newcastle-based bank, which was taken into public ownership in February 2008, is expected to be completed by the end of this year.
The Government will receive an initial #747 million with the potential to secure #1 billion in total - less than the estimated #1.4 billion it has injected into the bank during its period of public ownership.
Virgin Money failed in a bid to buy the bank following its collapse in 2007.
The sale of Northern Rock to Virgin Money was "the best deal for the British taxpayer'', Chancellor George Osborne said.
The operational headquarters of the combined business will be in Newcastle, while Virgin Money has pledged no further compulsory redundancies beyond those already announced for at least three years.
Virgin Money chief executive Jayne-Anne Gadhia said the deal would create a "major new competitor'' in the UK retail banking sector.
She added, "The two businesses complement each other well and together they will create a strong bank with over four million customers.''
The acquisition includes 75 branches and 2,100 staff, one million customers, a #14 billion mortgage book and retail deposits worth £16 billion.
Virgin Money, which was founded in 1995, has around three million customers.
Chancellor George Osborne said there would be a "powerful new presence on the high street'' which would offer "real choice and competition''.
"It's also good for British taxpayers - we are getting some of the money back that we put into the banking system under the last government.
And it's also good for the north east of England, because we are seeking to protect jobs there and make sure that the headquarters of Virgin Money will be in Newcastle.''
He added that the Treasury had taken independent advice on the deal and "looked carefully at all the figures''.
"It was clear to us that this was the best deal for the British taxpayer, we were getting more money back than any other deal on the table,'' he said.
The Government will receive 3747 million on completion and a further £50 million within six months. An additional £150 million will 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 could take the total proceeds for the Treasury to more than £1 billion.
Today's disposal excludes Northern Rock Asset Management, which remains under Government ownership and holds a book of residential mortgages and unsecured loans.
David Fleming, national officer for the Unite union, said, "The Treasury decision to sell Northern Rock to Virgin Money marks a significant moment in the history of this North East-based financial institution. After three years of turmoil and upheaval for the workforce at Northern Rock, Unite hope that today will be the start of a secure future.
It is now vital that Virgin Money give Unite firm guarantees that the 2,500 Northern Rock workforce is protected. Since the near collapse of the bank in 2008 some 3,000 staff have lost their jobs. It is now time to rebuild this iconic brand.
Unite welcomes the acknowledgement today by the new owner of the importance of Northern Rock for the North East region.''