Fears of Northern Rock sale recede – for now
Jun 15 2009 by Andrew Hebden, The Journal
NORTHERN Rock is unlikely to be returned to the private sector until the end of the year at the earliest, The Journal has learned.
Reports have suggested that the Treasury is mulling a possible sale or flotation of the Newcastle lender with Virgin mentioned as a possible suitor.
It is thought such a move would reflect well on beleaguered Prime Minister Gordon Brown, who took the decision to nationalise the troubled bank last year.
But The Journal understands this is highly unlikely to happen in the short-term as there can be no progress with a sale until a final decision is made by the European Commission on plans to provide additional state aid to the bank.
The commission needs to give its approval to the Government’s proposed £3bn injection of capital, which would allow the Rock to ramp up its lending activity again to £14bn over the next two years.
Sources close to the process suggest an initial ruling from the EC could come as early as this week, but the decision would then be subject to a month-long public consultation.
With the Brussels summer recess on the horizon, it is probable the process will not be completed until the autumn.
Northern Rock cannot begin its proposed restructuring of the business into two separate companies until this final approval is granted. Any sale of the company would be dependent on this restructuring having taken place.
The split has been described in reports as separating the business into a “good bank” – including its retail savings business, branches, new mortgage lending and some mortgage assets – and a “bad bank” which has been described as a home for its “toxic assets”.
The bank itself prefers to call the two parts a “bank company” and “asset company” and points out that some parts of the latter are well performing parts of the business.
Yesterday, asked about reports yesterday linking Virgin with a possible deal for the business, a spokesman for Northern Rock said: “The company never comments on market rumour.
“We are proceeding through the state aid application process and we have already talked about our restructuring of the company, which is not planned to take place until the latter part of the year.
“While a return to private ownership remains our objective, it is premature to talk about a sale ahead of the state aid application.”
