Press
Abbey offers hope to homeowners by relaxing criteria
by David Pawsey
FinancialAdviser 02 July 2009
Northern Rock could be in breach of European Commission state aid rules if it goes ahead with its plans to split the bank into two parts, according to documents published last week.
In a 17-page letter sent to David Miliband, secretary of state for foreign affairs, Neelie Kroes, european commissioner for competition, expressed concern that a split into two entities, BankCo and AssetCo, could give it an unfair competitive advantage.
The board of Northern Rock said BankCo, which would be regulated by the FSA, would hold retail deposits, some wholesale deposits and a proportion of the lender's unencumbered mortgage assets, together with its branches and mortgage origination capability.
AssetCo would hold the balance of the existing residential mortgage book, including those allocated to the Granite securitisation and covered bond programmes.
It would also hold the existing government loan to Northern Rock, plus the lender's wholesale funding instruments.
However in a letter sent on 7 May 2009 Ms Kroes said the commission had doubts the aid measures included in the new restructuring plan were compatitable with the common market.
She said: "In particular, on the basis of the information available to it, the commission cannot ascertain whether the notified aid is limited to the minimum necessary and the distortions of competition outweigh the positive effects of the aid."
Gary Hoffman, chief executive of Northern Rock, said he was confident the plan met all state aid requirements.
He said: "We continue to make good progress in support of the government's revised state aid notification.
"As part of the approval process, the European Commission has now made reasonable requests for additional information as part of its extended review - this is common in approval processes of this type."
James Carter, proprietor of London-based IFA Independent James, said: "It is a difficult balance to get right. It is an unprecedented situation."