ONCE VALUED at £20 billion, Northern Rock, the bank that suffered the first run on a British bank for 150 years, was yesterday sold by the British government to Richard Branson’s Virgin Money – with taxpayers facing a minimum loss of £400 million.

The billionaire last night vowed to take on the “big five” British banks, promising to offer current accounts from 2013 and to inject competition into the mortgage market – in which Mr Branson can now compete for the first time.

Chancellor of the exchequer George Osborne will get nearly £750 million (€876 million) from the sale, although this figure could rise to £1 billion if the business does particularly well subsequently. This however still far below the £1.4 billion his predecessor, Labour’s Alastair Darling, was forced to inject to save it.

Northern Rock grew rapidly in an era of low interest rates but it ran into trouble when it was no longer able to raise short-term loans on the markets to cover its mortgage book, which remains with the British government.

Virgin Money will take Northern Rock’s 75 branches and one million customer accounts, but £14 billion worth of mortgages will continue to be held by Northern Rock Asset Management. Mr Osborne may be able to sell this on at a later time.

Virgin Money started as Virgin Direct in 1995. It only won a banking licence last year after it took over Church House Trust with the help of US billionaire Wilbur Ross – who has also bought into Bank of Ireland.

Northern Rock staff in Newcastle cheered when the news was announced. Since its 2007 collapse, more than half of the 5,500 staff have lost their jobs. The Northern Rock brand will disappear, but the operation will remain headquartered in the northeast.

Welcoming the deal, Mr Osborne said: “We are going to have a powerful new presence on the high street, offering better deals to families and real choice and competition. It is also good for British taxpayers.”

Virgin Money introduced credit cards and personal loans in 2002, car and home insurance offers two year later and life insurance in 2007, although it has struggled to make major progress, financial experts argue.

Mr Branson has tried to buy the business before. A 2007 deal with AIG and a number of investors would have cost him £20 billion – a far cry from the £747 million paid yesterday, even if much of the 2007 money would have gone in as liquidity into the then cash-starved operation.