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Government hopes of selling Northern Rock before the general election looked doomed today amid signs potential bidders will wait until after polling day.
The European Commission approved plans to split the nationalised lender into a “good bank” and a “bad bank” paving the way for a sale of the sound half of the business to a private buyer.
The shake-up will see the Government plough another £8 billion into Northern Rock, which was saved from collapse by a £27 billion bailout in autumn 2007 and eventually nationalised in early 2008.
Ministers are keen to complete the sale of the good bank before the election, which must take place by June 2010, with supermarket giant Tesco, Sir Richard Branson's Virgin Money, BBVA of Spain and National Australia Bank among those thought to be interested.
But analysts warned it will be difficult to secure a deal before the election as would-be buyers may rather wait until they know which party will be in power.
And a source close to one potential bidder said: “There is an enormous process to go through to separate good bank from bad bank, and even when it has been put up for sale, buyers would then have to crunch the numbers. It makes selling this business in the next six to nine months pretty tough.”
Northern Rock chief executive Gary Hoffman said “there is no sales process in place” and added that he has not discussed re-mutualising the former building society.
He assured Northern Rock customers it was “business as usual” at the bank.
The “good bank” — Northern Rock plc — will hold customer savings and some of the safest mortgages.
It will also offer a maximum of £4 billion of new mortgage lending this year, £9 billion in 2010, and £8 billion in 2011 under the deal with the competition authorities in Brussels concerned that state aid gives it an unfair advantage.
The “bad bank” — Northern Rock Asset Management — will hold the rest of the mortgages, one in 10 of which are in arrears, as well as other risky assets. It will not offer new mortgage lending and will eventually be liquidated.
Hoffman said it would take around 10 years to repay the remainder of the Government loan, although with so many toxic assets on its books there could still be losses for the taxpayer.
European competition commissioner Neelie Kroes said: “The failure of Northern Rock would have had major detrimental effects on the UK mortgage market and the overall financial stability of the UK economy.
“Important structural changes, including the split of the bank into two entities and a significant reduction of its market presence will allow the bank to become viable in the long-term and limit distortions of competition.”
Unions immediately called on the Government to remutualise the “good” Northern Rock and said its demutualisation a decade ago was “a disaster”.
Unite national officer Rob MacGregor said: “The Government now has the opportunity to make Northern Rock a beacon for a new era of responsible financial services.”
Tesco signalled its commitment to banking today by pledging to create 1,000 jobs in Newcastle at a customer service centre for its finance division.
Reader views (2)
"Hoffman said it would take around 10 years to repay the remainder of the Government loan, although with so many toxic assets on its books there could still be losses for the taxpayer".
Repayment of the government loans in ten years, or any other period one might care to name,is beyond the ingenuity of man. The sooner that the public understands this, and McBroon owns up to it, the better for all of us.
- Great Granddad, Ramsgate, S.A.
Quote - "The shake-up will see the Government plough another £8 billion into Northern Rock"
More good money following bad. Another 8 billion to be added to our impending tax increases / public sector cut backs. There still is no guarantee either that we will get all our money back - losses from this bail out are still likely. Is there no end to Gordon`s cock ups.
- Brian G, Norfolk Gorleston
