The Northern Rock lifeboat that will stand as an abiding memory of the beginning of the financial crisis in 2007 could cost up to 2bn sterling.
That's the price tag the National Audit Office has slapped on the process by which the UK government rescued the stricken mortgage lender before splitting it into two parts; the "good" bank, Northern Rock plc, and the "bad" bank, Northern Rock Asset Management.
The upfront loss is likely to be £480m claims the NAO - this figure comes from the sale of the "good bank" to Richard Branson's Virgin Money in November of last year for an initial fee of £747m.
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That unit has 75 branches, one million customers and about £14bn in mortgages. Branson is likely to make further payments that could bring the total to near £1bn depending on the performance of his new business. The taxpayer's initial investment in this part of Northern Rock was £1.4bn.
The problem for the government, says NAO, is that is still needs to run down the "bad" bank (Northern Rock Asset Management). It owes around £20bn to the Treasury and over the lifetime of those loans, many of which will go partly or fully unpaid, the tax-payer may take a hit of £2bn.
The news gets worse for the government. The NAO criticises the Treasury for taking at face value a business plan from Northern Rock management that has now turned out to be "optimistic".
Amyas Morse, head of the NAO, said: "A sale of Northern Rock plc at the earliest opportunity was the best option to minimise losses on the £1.4 billion of public money invested in the bank, but most of the former Northern Rock's assets will be in public ownership for many years to come and there could be a net cost for the tax-payer of some £2bn by the time these assets are finally wound down."
The NAO does concede though that £2bn might be a reasonable price to pay for "stability" within Britain's financial system.
BS
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