Rock cleared to write loans

NORTHERN Rock has been cleared by the Financial Services Authority (FSA) to keep lending, despite breaching its minimum capital requirements.<br /><br />The FSA had already granted the nationalised mortgage lender a waiver to write new mortgages despite its low levels of capital, permitting the bank to include tier two capital &ndash; a riskier type of cash reserve &ndash; in order to meet regulatory requirements. <br /><br />But the City watchdog will now give the lender what one Rock insider termed &ldquo;a period of forbearance&rdquo;, until the European Commission (EC) clears a &pound;3bn state cash injection.<br /><br />If the EC gives its blessing &ndash; which is unlikely to happen until the autumn &ndash; Rock will restructure itself into two units, BankCo and AssetCo, which will receive the cash boost.<br /><br />Bidders are likely to focus on BankCo, which will include the bank&rsquo;s highest quality assets, new loans, branches and deposits.<br /><br />Tesco and Sir Richard Branson's Virgin Money are both eyeing up the lender, with Prime Minister Gordon Brown keen to see a sale to provide a much-needed coup prior to the general election.<br /><br />A spokesman for Virgin Money hinted that the outfit would look at buying part or all of Northern Rock when the opportunity arose.<br /><br />&ldquo;We&rsquo;ve consistently said that we have the brand and management team to build a bank and that the market needs new entrants,&rdquo; he said.<br /><br />&ldquo;We&rsquo;ve never hid our intentions to be a bank but that will depend on market conditions and we&rsquo;re still assessing the best time and opportunity to enter the market.&rdquo;<br /><br />Analysts say Northern Rock must have lost at least &pound;1bn to have breached FSA rules.