Treasury paves the way for Northern Rock to be broken in two
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The Treasury has made Northern Rock plc Transfer Order 2009 to implement the legal and capital restructuring of the company.
The order provides the legislative mechanism through which the restructuring of the troubled lender will be implemented, and will affect the legal and capital restructuring of Northern Rock on January 1 2010.
The restructuring process will result in two companies being created. Of these, Northern Rock (Asset Management) plc will hold and service most of the lender’s residential mortgage book worth some £50bn and be regulated by the Financial Services Authority as a mortgage provider.
On completion of the restructuring this entity will surrender certain powers including its author- isation to accept deposits.
At the transfer date it is expected that more than 90% of the mortgages held by the second company, Northern Rock plc, will be fully performing.
Its portfolio will include the residual interest in mortgages which were sold to the lender’s Granite securitisation programme and its covered bond programme, totalling some £38bn. This company will not offer any new mortgage lending.
Northern Rock (Asset Management) plc will also continue to hold all unsecured loan accounts and be the borrower in respect of the government loan and the company’s outstanding wholesale funding and subordinated debt.
As part of the restructuring plan the government loan will increase by some £8bn to provide cash to be transferred to the new bank to support its retail deposit book and new lending activity.
The European Commission confirmed on October 28 that it approved the restructuring plan.
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