Virgin Money applies for banking licence in the UK

Hopes of more competition among the UK’s struggling banks were lifted today after it was disclosed that Richard Branson’s Virgin Money has applied to become a bank.

The business, which currently offers credit cards, savings and investments, applied to the UK's Financial Services Authority for a full banking licence earlier this month.

The process could take up to six months but could lead to a push into the current account and mortgage market during 2010 if successful.

A spokesman said: “This is an administrative first step to create a platform alongside the strong business that we already have.”

The move comes days after the governor of the Bank of England Mervyn King called for more competition in the banking sector as the impact of the financial crisis and state bail-outs fades.

He told an audience in Edinburgh: “As in the English Premier League, getting into the top four will not be easy for those outside it. But in both cases I hope greater competition will produce less rigidity in the composition of the top four.”

Virgin Money, which has about 200 staff, was the front runner to buy Northern Rock as it sought emergency support in the early stages of the credit crunch, but the Government eventually opted to nationalise the struggling lender in February 2008.

The company’s options include organic growth or taking a step into the market through a major acquisition.

The application comes as plans to split the Rock in two ahead of a possible sale are reportedly set to gain European approval in the coming weeks. Virgin Money and Tesco could be two potential bidders.

The restructuring would see the bulk of Northern’s retail deposits and low-risk mortgage loans separated into a good bank and sold off.

Virgin Money is also understood to be in talks with the former chairman of the Newcastle-based lender, Bryan Sanderson, over a non-executive director role with the business.

Mr Sanderson took over as chairman in October 2007 in the immediate wake of the crisis, before stepping down four months later.