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back to newsroom26/06/2009Update on State Aid approval process for Northern Rock
Please Note: This article pre-dates the company restructure of 01 January 2010
Overview
The European Commission has published on its website and will publish in the Official Journal of the European Union an invitation to third parties to comment on the Government’s notification of a revised State Aid package for Northern Rock (the “Company”).
This follows the announcement by the European Commission on 7 May 2009 that it was extending the scope of its investigation, under State Aid rules, into the UK’s proposed State Aid package for the Company.
The European Commission has also requested further information from the Government to facilitate its ongoing assessment as part of the normal State Aid approval process.
A copy of the document published by the European Commission will be posted on the Investor Relations section of the Company’s website.
The Business Plan
As announced in its Quarter 1 Trading Statement on 23 April 2009, the Company supports the Government’s updated restructuring proposals and revised business strategy for Northern Rock (the “Business Plan”).
The Business Plan notified to the European Commission for approval reflects the previously announced proposed changes in business strategy, including:
- A significantly slower rate of mortgage redemptions
- Mortgage lending of up to £14 billion over the next two years, including up to £5 billion in 2009
- A change in the repayment profile of the Government loan, to reflect the new mortgage lending and slowing redemptions
- A legal and capital restructuring of the Company, designed to achieve an efficient capital position which meets the applicable regulatory capital requirements and delivers value for money for taxpayers without undue distortions of competition.
The proposed restructuring, which is core to the business plan, is expected to complete in the second half of the year and will split the Company into two separate entities:
- “BankCo” – is proposed to be authorised by the FSA as a deposit taker and will undertake new lending. BankCo will hold the retail deposit book, some wholesale deposits and a proportion of Northern Rock’s unencumbered mortgage assets, together with Northern Rock’s branches and mortgage origination capability.
- “AssetCo” – is proposed to hold the balance of the existing residential mortgage book, the vast majority of which is performing, including the Company’s interest in those mortgages allocated to the Granite securitisation and covered bond programmes. AssetCo is also proposed to hold the existing Government loan to Northern Rock, plus Northern Rock's wholesale funding instruments. It is proposed that AssetCo will not hold any retail deposits and, subject to FSA approval, will be regulated as a mortgage lender with a lower regulatory capital requirement.
The proposed structure offers the most capital efficient solution, with an additional capital requirement, for BankCo and AssetCo combined, of no more than £3 billion, as previously announced in August 2008.
Implementation of the proposed restructuring is conditional on European Commission approval and on any necessary consents and approvals under foreign law.
European Commission Approval Process
Under European State Aid rules, the European Commission needs to satisfy itself that the aid package for the Company is the minimum aid necessary to enable Northern Rock to return to long-term viability, while avoiding undue distortion of competition. The European Commission has therefore requested further information from the Government to facilitate its assessment.
The Company continues to work closely with the Government to provide additional information, in response to questions from the European Commission, as part of the normal State Aid approval process.
Gary Hoffman, Chief Executive said:
“We are confident that our plan offers the best way forward, meets all State Aid requirements and offers significant benefit for consumers and value for taxpayers as we position Northern Rock for a return to private ownership.
“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. We will continue to work with the Government to provide all of the additional information to the European Commission to help inform their assessment.”
Media Contacts
Northern Rock:
Brian Giles
Simon Hall
Jaqualyn Gill
0191 279 4676
E-mail: press.office@northernrock.co.uk
Brunswick:
Anita Scott
Nigel Prideaux
Tel: 020 7404 5959
Important Notice
This document contains certain forward-looking statements with respect to the plans and objectives of Northern Rock, its current goals and expectations relating to its future financial condition and performance and the future operations of its business
Forward-looking statements are sometimes, but not always, identified by the use of a date in the future or by such words as “anticipates”, “aims”, “due”, “could”, “may”, “should”, “expects”, “believes”, “intends”, “plans”, “potential”, “reasonably possible”, “targets”, “goal” or “estimates” (although their absence does not mean that a statement is not forward looking). By their nature, forward-looking statements are unpredictable and involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Northern Rock’s actual future results or developments may differ materially from the results and developments expressed or implied in these forward-looking statements as a result of a variety of factors, including (but not limited to) UK domestic and global economic and business conditions, market related risks such as interest rate and exchange rate volatility, delays in implementing proposals, difficulties with computer systems, legislative, fiscal, competition and regulatory developments and changes, the impact of any legal or other proceedings against Northern Rock, changes in customer preferences and other factors.
All forward-looking statements in this [press release/announcement] are based on information available to Northern Rock as of the date hereof. All written or oral forward-looking statements attributable to Northern Rock or any person acting on behalf of Northern Rock are expressly qualified in their entirety by the foregoing.
Other than in accordance with its legal or regulatory obligations, neither Northern Rock nor anyone acting on its behalf undertakes any obligation to update or revise any forward looking statement, whether as a result of new information, future events or otherwise.