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EU 'to back Northern Rock split' EU 'to back Northern Rock split'
(about 6 hours later)
The European Union (EU) is set to approve plans for nationalised Northern Rock bank to be split in two - paving the way for a partial sale.The European Union (EU) is set to approve plans for nationalised Northern Rock bank to be split in two - paving the way for a partial sale.
One business, to be known as the "good bank" would hold savers money, carry out new lending, and hold some existing mortgages. One business, to be known as the "good bank" would hold savers' money, carry out new lending, and hold some existing mortgages.
A second "bad" bank would be set up to hold the rest of the mortgages and repay outstanding government loans.A second "bad" bank would be set up to hold the rest of the mortgages and repay outstanding government loans.
Meanwhile a report says Royal Bank of Scotland and Lloyds will also be split. Meanwhile, a report says Royal Bank of Scotland and Lloyds will also be split.
The Independent newspaper reported that the government backed the division and part-sale of the two banking giants.The Independent newspaper reported that the government backed the division and part-sale of the two banking giants.
New players
The paper said ministers were "determined" to see more competition in the market, believing the sector was too dominated by Barclays, HSBC, RBS and Lloyds.The paper said ministers were "determined" to see more competition in the market, believing the sector was too dominated by Barclays, HSBC, RBS and Lloyds.
Even if the UK government did not act, the European Commission may force Lloyds and RBS to spin off some of its subsidiaries in an effort to limit banks being propped up by state aid from having too much of a stranglehold on the market.Even if the UK government did not act, the European Commission may force Lloyds and RBS to spin off some of its subsidiaries in an effort to limit banks being propped up by state aid from having too much of a stranglehold on the market.
Reports in recent months have suggested that Lloyds - which bought HBOS at the height if the crisis - would spin off Cheltenham & Gloucester. Meanwhile RBS is expected to split its old Williams & Glyn brand. Reports in recent months have suggested that Lloyds - which bought HBOS at the height of the crisis - would spin off Cheltenham & Gloucester. Meanwhile RBS is expected to split its old Williams & Glyn brand.
If RBS and Lloyds did have to sell off some of their branch networks, it could lead to an "interesting shake-up" of the banking system, the BBC's chief economics correspondent Hugh Pym said.
New players such as Tesco or Virgin could enter the market, increasing competition, he said.
Taxpayer returnsTaxpayer returns
If, as expected, the EU approves the split of Northern Rock on Wednesday, the government will begin exploring sale options.If, as expected, the EU approves the split of Northern Rock on Wednesday, the government will begin exploring sale options.
While the "bad bank" is likely to remain in government hands for some time, a deal for the rest of the business could potentially be completed before the General Election next year. While the "bad bank" is likely to remain in government hands for some time, a deal for the rest of the business could potentially be completed before the general election next year.
Among those named as potential buyers of the "good" bank are Virgin and National Australia Bank - owner of the Clydesdale and Yorkshire Bank.Among those named as potential buyers of the "good" bank are Virgin and National Australia Bank - owner of the Clydesdale and Yorkshire Bank.
Revenue from the sale would be returned to the taxpayer.Revenue from the sale would be returned to the taxpayer.
Northern Rock was rescued from collapse in the autumn of 2007, and formally nationalised in early 2008.Northern Rock was rescued from collapse in the autumn of 2007, and formally nationalised in early 2008.
The idea of a split was first outlined earlier this year as part of a changed government strategy for the bank.The idea of a split was first outlined earlier this year as part of a changed government strategy for the bank.
Earlier this year Northern Rock said it would slow down its previous plan, which had been to raise money by redeeming its mortgage loans as fast as possible.Earlier this year Northern Rock said it would slow down its previous plan, which had been to raise money by redeeming its mortgage loans as fast as possible.
At the government's behest it has now agreed to start expanding its lending again, by an extra £14bn worth of mortgages in the next two years.At the government's behest it has now agreed to start expanding its lending again, by an extra £14bn worth of mortgages in the next two years.
Total taxpayer support for the bank has amounted to £26.9bn, although most has now been repaid.Total taxpayer support for the bank has amounted to £26.9bn, although most has now been repaid.
The plan is that the remaining amount will be repaid by the end of 2010.The plan is that the remaining amount will be repaid by the end of 2010.