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L&G sells mortgage and banking arms for £131m

Legal & General has sold its mortgage and deposit account business to Northern Rock for £131m in a deal that will see the providers distribute each other&#39s products.

Northern Rock will retain the L&G branding for three months after purchase. The current agreement for L&G to distribute long-term savings and protection products through Northern Rock will continue.

There will also be a new distribution agreement in which L&G will white-label banking products manufactured by Northern Rock.

The cash sale of L&G&#39s banking subsidiary, which is subject to regulatory approval, will net it a £36m profit. L&G&#39s mortgage club is unaffected by the deal.

L&G says the sale will enable it to concentrate on growing its core business of long-term savings, protection and general insurance. For Northern Rock, the deal allows it to supplement organic growth.

L&G Bank and L&G Mortgage Services have 106,000 customers with £1.2m in mortgages, £65m in personal loans and £1.2bn in retail deposits. L&G MS has focused on buy-to-let mortgages and the equity release market.

L&G head of public relations John Morgan says: “It is a question of sticking to your knitting. The deposit market is swamped and it is difficult to be competitive unless you inject a large amount of capital. So we are focusing our energies on life, pensions and investments, particularly Isas.”

Northern Rock chief executive Adam Applegarth says: “This an attractive deal for us. We have been seeking opportunities to augment our business by buying high-quality mortgage books, hence our reason for approaching L&G. As a result of this deal, Northern Rock will be acquiring a funded, low-risk, high-performing mortgage book at a fair premium of £36m above net asset value.”

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