UPDATE: EU Commission Clears Northern Rock Restructuring Plan
October 28 2009 - 9:05AM
Dow Jones News
The U.K. government could put billions of pounds more of
taxpayer money into nationalized lender Northern Rock PLC under a
restructuring plan approved by the European Commission on Wednesday
that aims to find a buyer for much of the bank.
The E.U. on Wednesday cleared a series of measures, without
imposing the draconian conditions some had feared after Dutch bank
ING Group NV (ING) was obliged to split its banking and insurance
businesses.
Under the approved plan, Northern Rock will be split into a
"good" bank - which will hold the bank's deposits, sound loans and
mortgages - and a "bad" bank holding mostly soured loans that will
be gradually wound down.
Northern Rock executives in a conference call said that an
existing loan of around GBP15 billion will be topped up with GBP8
billion to fund new lending - that will be subject to caps until
the end of 2011 - as well as GBP3 billion in new capital plus a
working capital liquidity facility.
The commission said it is satisfied the restructuring package
will restore the good bank's long-term viability and allow the bad
bank to be liquidated in an orderly fashion.
Northern Rock will only be able to lend GBP9 billion next year
and GBP8 billion in 2011, while it will be limited to hold no more
than GBP20 billion in deposits, near its current GBP19 billion
mark.
The commission's investigation also found the financial aid
package in the plan was kept to a minimum as required under E.U.
state-aid rules and won't give the business an undue advantage over
rivals.
"The failure of Northern Rock would have had major detrimental
effects on the U.K. mortgage market and the overall financial
stability of the U.K. economy," EU Competition Commissioner Neelie
Kroes said.
The U.K. government's financial support includes
recapitalization measures of up to GBP3 billion, liquidity measures
of up to GBP27 billion and guarantees covering several billion
pounds of liabilities.
-By Carolyn Henson and Margot Patrick, Dow Jones Newswires; +32
2 741 1481; carolyn.henson@dowjones.com