Richard Branson to sell a stake in banking group to American billionaire Wilbur Ross

Richard Branson’s ambitious plan to set up his own banking group has received the backing of American billionaire Wilbur Ross, who is prepared to spend almost $1 billion to back the project.

Branson’s Virgin Money announced its push into the retail banking sector in 2007, when it bid unsuccessfully for the retail assets of collapsed British bank, Northern Rock.

Despite that setback, Branson has pushed on, applying for a banking licence and hiring several experienced executives to head up his new operation.

Virgin Money is now seen as a key contender to buy the retail banking assets of the troubled British Bank, Royal Bank of Scotland, which were put up for sale late last year as the bank emerged from the GFC.

The British Government now controls the majority of the bank after bailing it out, but the European Commission has ordered RBS to sell 381 branches for competition reasons.

But the Virgin Money bid will require capital, which makes Ross’ support crucial to Branson’s plan.

According to media reports, Ross, who was valued at $US1.7 billion on Forbes magazine’s recent global billionaires list, will spend $166 million to buy a 21% stake in the Virgin Money business.

Ross who made his fortune from selling his steel empire back in 2004, is also prepared to inject a further $830 million of capital to fund the acquisition of RBS.

“It’s a classic distressed situation. What got the industry into these problems was over-rapid expansion and over-aggressive lending, banks making it too complicated. We see a chance to reinvent the system,” Ross told the Financial Times.

The battle for the RBS assets is expected to be highly competitive and Virgin Money will face off against Australia’s own NAB in the battle for the bank’s branches.

However, Ross is prepared to support other acquisitions in the sector if the Virgin’s RBS bid fails.

Virgin Money also has a five year organic plan if it cannot buy a banking footprint. This plan would see it open around 70 of its own branches.