Rock stays confident in face of EU doubts
Jun 27 2009 The Journal
NORTHERN Rock insisted last night it was confident it would be able to press ahead with a restructuring of the business – despite a warning from the European Commission that the plans may not acceptable as they stand.
Northern Rock and the UK Government are currently waiting for EC approval on an amended business plan which will see a further £3bn of UK taxpayers cash pumped into the bank to support £14bn of further mortgage lending.
Under the plans, the nationalised bank would be split into two divisions before attempts are made to return it to the private sector.
But the EC yesterday said it had doubts the plans as they stand are compatible with the common market and asked for further comments on its observations from the UK Government, Northern Rock and other interested parties.
The EC is particularly concerned that the division into the two separate entities of BankCo (the so-called “good bank” which would include its retail savings business, branches, new mortgage lending and some mortgage assets) and AssetCo (the “bad bank” including “toxic” mortgage assets), will breach competition rules. A letter from Neelie Kroes, European Commissioner for Competition to the British Government said the EC believes state measures with regards to AssetCo will also directly benefit BankCo, “as it will be able to continue its activities relatively unburdened by possible impairments on the lower quality assets, since they would have been transferred to AssetCo”.
“As a result, BankCo has an advantage over its competitors that are faced with impairments on lower quality assets, which they have to absorb, limiting the funds available for new lending. This leads to a distortion of competition.”
Rock chief executive Gary Hoffman said: "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.
"We continue to make good progress in support of the Government's revised state aid notification.
“As part of the approval process, the EC has now made reasonable requests for additional information as part of its extended review - this is common in approval processes of this type.
“We will continue to work with the Government to provide all of the additional information to the European Commission to help inform their assessment."
The Rock say its proposals are still at an early stage, that “a lot of work” still needs to be done and that it will continue to work the Government on the proposals. It expects its plans to be approved before the end of the year.
