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Tuesday 01st of December 2009
October 28, 2009    

EU set to approve Northern Rock split

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by Kay Murchie

Crisis-torn Northern Rock is to be split into two, after receiving the necessary approval from the European Union (EU).

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.

The plan is for bank to be split into two divisions - a “good bank” of profitable assets and “bad bank” of toxic debts.

Northern Rock 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 and this division will be responsible for repaying the £26.9 billion loan, however most of this has now been repaid.

However, the split will not be welcomed by everyone. Last month, the Building Societies Association (BSA) called on the Government to return Northern Rock to the mutual sector, arguing that mutuals take less risk than banks owned by shareholders.

Adrian Coles, director general of the BSA, believes that by returning to Northern Rock to its former mutual status, it would help strengthen competition and create a more diversified financial sector. Northern Rock had been a building society but it demutualised in 1997.

Meanwhile in other news, it was reported earlier this week that troubled buy-to-let lender, Bradford & Bingley (B&B), is reportedly considering splitting itself into two in order to raise money to repay its £18.4 billion loan from the Financial Services Compensation Scheme (FSCS).

However, the lender said that a split is “not something that is going to happen anytime soon.”

Meanwhile, there are reports that Royal Bank of Scotland (RBS) and Lloyds Banking Group are to be split.

According to The Independent newspaper, the Government backed the division and part-sale of the two banking giants.

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