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Saturday 07th of November 2009
August 17, 2009    

BSA against Northern Rock split

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by Kay Murchie

The Government announced earlier this year it was planning to split nationalised Northern Rock into two divisions - a deposit bank and a mortgage platform.

However, the proposals have met with criticism from the Building Societies Association (BSA) saying that the split would put building societies at a big disadvantage.

Northern Rock collapsed at the onset of the credit crunch in autumn 2007 after savers staged a nationwide run on the bank. It was then nationalised in February 2008.

However, following European Union (EU) approval, it has now been confirmed that the bank will see a new “BankCo” - which will hold its savers money, carry out new lending, and retain some of its existing mortgages.

Meanwhile, “AssetCo” is set to hold the balance of the existing residential mortgage book.

According to the BSA, “BankCo is likely to be able to lend freely, without having to absorb losses from any non-performing loans, unlike all of its competitors in the UK mortgage market, to varying degrees.”

If Northern Rock is to shed all its toxic debt the bank should be subject to conditions, said the BSA.

As a result, the BSA asked the European Commission to impose some restrictions on a separate BankCo, in order to stop it being too competitive with other lenders.

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