UK government details Rock loan securitisation

Private sector bidders for Northern Rock were boosted by government plans to securitise and guarantee its loans to the struggling UK bank, although the government could still attempt to nationalise the bank.

The UK government plans to securitise and guarantee its more than £20 billion ($39 billion; €26.9 billion) in loans to struggling UK bank Northern Rock in an attempt to find a private sector sale, according to a statement.

Alistair Darling:
securitising Rock

The loans would be issued to market backed by a mixed pool of Northern Rock’s assets, the statement said. The loans will be repaid in full with interest upfront as soon as the funds are raised. US bank Goldman Sachs prepared the plans for the UK government, a Treasury spokesman said.

Alistair Darling, the UK Chancellor of the Exchequer, will issue a statement to Parliament later today on the proposals.

The statement said: “Any losses to the asset pool would first be borne by Northern Rock to protect the taxpayer.” The government aims to benefit from any private sector “upside returns”, it said.

A consortium led by UK billionaire Richard Branson, which includes US distressed investor WL Ross, has bid for the bank, as has investment firm Olivant, led by Luqman Arnold, the former chief executive of Abbey National. The Olivant proposal includes an offer of warrants to the UK government.
The government said the financing would only be available for proposals that protected taxpayers’ interests, as well as meeting the objectives of the Tripartite Authorities – the Bank of England, the Financial Services Authority and the UK Treasury – for financial stability and the protection of consumers. Should no bid meet these criteria the government will bring forward plans to nationalise Northern Rock.

All bids for the bank must be tabled by 4 February.

Northern Rock’s share price was up 40.3 percent to £0.91 at 1024 GMT.