The European Commission (EC) has approved the government’s state aid package for Northern Rock. This approval is an essential requirement of the planned legal and capital restructure, which is central to the business plan for Northern Rock.
The proposed restructuring will result in two separate companies, Northern Rock and Northern Rock (Asset Management). Northern Rock is a new savings and mortgage bank that will hold and service all customer savings accounts and some existing mortgage accounts. The bank is proposed to be authorised as a deposit taker by the FSA and will offer new savings products.
Northern Rock (Asset Management) is proposed to hold and service the balance of the existing residential mortgage book and, subject to FSA approval, will be regulated as a mortgage provider, not a deposit taking bank. It will hold all unsecured loan accounts, the Government loan and Northern Rock’s current wholesale funding and subordinated debt instruments. Northern Rock plc and Northern Rock (Asset Management) will both be in receipt of state aid following the restructure.
The restructure is expected to strengthen the capital and liquidity position of Northern Rock significantly, and offers value for money to taxpayers by adopting different regulatory frameworks to create a capital efficient structure. The restructure will also enable Northern Rock to be an active participant in the UK mortgage market.
Gary Hoffman, CEO, said: “Receiving approval from the European Commission is an important and positive step for Northern Rock, our customers, employees and the Government. We are making good progress towards achieving the legal and capital restructure and will continue to work with the Government and the FSA to achieve the necessary approvals. We are delivering on our promises.”
The proposed legal and capital restructure is expected to complete by the end of 2009, subject to FSA approval.
