Rock plays down risk to taxpayers

Nov 24 2007 by Adrian Pearson, The Journal

NORTHERN Rock has played down the risk to taxpayers after the bank revealed it had sold £53bn of its mortgages.

It has secured loans of almost £23bn from the Bank of England with much of this guaranteed against the lender’s impressive mortgage book.

It emerged yesterday that Northern Rock had sold on some of its mortgages to Jersey-based trust company Granite Master Issuer.

The bank has insisted the practice of selling on loans is common and that with a mortgage book worth more than £100bn, it could still cover the emergency loans twice over.

The mortgage sale was reported in a national newspaper yesterday, which said money lent by taxpayers could be at risk if business experts in the North-East have played down the risk.

Campbell Maclachlan, assistant director of investment management group Wise Speke, said the mortgage sale was not in itself unusual.

“This re-parceling of loans has long been a feature of lending markets and Northern Rock is not alone in what it has been doing.

“The difficulty lies in establishing what security each creditor has claim over and this includes the Bank of England.

“Until this is clarified, there remains the possibility that taxpayers could yet lose out.

“However, Northern Rock’s ability to repay its loans could yet be transformed through a takeover or refinancing.” The risk is due to the Bank of England, and the embattled Chancellor Alistair Darling, depending on Northern Rock being able to repay any loans from its mortgage portfolio.

Northern Rock makes most of its profit from its mortgage business, unlike other banks which have a large amount of individual savings to help generate cash to help cover day-to-day trading.

Northern Rock said last night the Granite sales were “very similar” to the methods used by other high street banks.

A spokesman for the bank said: “The market is very familiar with Northern Rock’s Granite programme. Monthly investor reports are published every month. Our Granite structure and programme reporting are open and transparent.

“Northern Rock has assets of over £100bn. Only around half of those assets are securitised as part of the Granite programme, leaving around £50bn of unencumbered assets.

“Against claims that Northern Rock’s loan with the Bank of England is in the order of £23bn, this would therefore suggest that Northern Rock is able to cover such a figure by around two-fold.”

The group said that its asset quality “remains strong”.