The proposed restructuring will split the company into two separate entities. The first lender, “BankCo”, will hold deposits, branches and unencumbered mortgage assets. The second, “AssetCo”, will be made of the Granite master trust, all covered bonds, the Northern Rock mortgage book and all other wholesale instruments. It will also hold the Government loan on its books.
Both lenders will be able to originate mortgages, but “AssetCo” will have a lower regulatory capital requirement. “BankCo” will be a deposit taker.
The Government is continuing to work with the EU Commission to further prove that the state aid offered to Northern Rock was the minimum needed to enable long-term recovery, while avoiding any undue competition bias.
The Government nationalised Northern Rock in February 2008 with a £26bn lifeline. The bank has subsequently paid more than half of that amount back, but has slowed down the repayment in 2009 to concentrate on new lending.
Northern Rock chief executive Gary Hoffman says: “We are confident that our plan offers the best way forward, meets all state aid requirements and offers significant benefit for consumers and value for taxpayers as we position Northern Rock for a return to private ownership.”
In related news, Reuters has reported that Virgin president Richard Branson says he is still keen to buy Northern Rock as a platform for Virgin Money to enter the banking sector.
He told the newswire: “If the Government chose to sell it, we would hope to take advantage. We do think the timing is very good to have a brand people trust to get into banking.
“We are not going to give up. Over the next few months something should come up.”