Northern Rock has been sold to Virgin Money by the UK government in a £747m cash deal which could see the government receive an extra £1bn in future.
The government will receive around £50m of extra cash within six months of completion, on top of the £747m figure.
A further £150m will be paid in the form of a capital instrument.
An additional cash consideration of £50-80m will be paid upon a future profitable initial public offering or sale in the next five years.
The initial sale sum does however, fall short of the £1.4bn pumped in to the lender by taxpayers when it was nationalised in 2008.
The sale is expected to be completed on 1 January 2012, pending EU merger clearance and approval by the Financial Services Authority.
As part of the deal, Virgin Money has committed to no further compulsory redundancies beyond those already announced, for at least three years from completion.
The lender has also committed to retaining, and in future expanding the total number of branches.
Support will be extended for the Northern Rock charitable foundation for a further year, and Newcastle will be the operational headquarters for Virgin Money.
Announcing the deal George Osborne, chancellor of the exchequer, said: “The sale of Northern Rock to Virgin Money is an important first step in getting the British taxpayer out of the business of owning banks. It represents value for money; will increase choice on the high street for customers; and safeguards jobs in the north east.”
The decision to proceed with a sale was based on advice from UK Financial Investments (UKFI) and their independent advisers, having considered all bids and other relevant options.
The sale will not affect current customers of Northern Rock, who will carry on their banking as usual without any changes to their terms and conditions as a result of this announcement.