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RBS and Rock to ringfence toxic assets

Royal Bank of Scotland and Northern Rock are to move their toxic assets into so-called “bad banks” in an attempt to clean up their balance sheets.

Northern Rock chief executive Gary Hoffman says: “There is a lot of work to do in what this structure will look like but some of our bad assets will be put into a separate legal entity in order to minimise and optimise the amount of capital we have. Precisely what assets will go where, we don’t know yet.”

Hoffman admitted that Northern Rock did not know whether its “good bank” or “bad bank” would be bigger but said there is no intent to use the Government’s asset guarantee scheme as capital within the group was adequate to cover capital requirements for both banks.

RBS is set to follow suit in ringfencing up to 300bn of bad debt after it reports record losses of 28bn this week.

Exact managing director Alan Cleary says: “The Government’s other schemes are just a halfway house and we are at Defcon 4 now. The Government and the banks have to do this to limit the damage to the UK economy.”

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