Rock gets go-ahead to split

CHANCELLOR Alistair Darling ruled out the prospect of a quick sale of Northern Rock yesterday, despite winning backing from the European Union to split the troubled lender into a &ldquo;good&rdquo; and &ldquo;bad&rdquo; bank ahead of a sell-off.<br /><br />EU competition commissioner Neelie Kroes approved the government&rsquo;s proposals to split the Newcastle-based bank, led by chairman Ron Sandler, towards the end of the year. <br /><br />However, a Treasury spokesman told City A.M. last night that &ldquo;the government was focused on getting value for money and bringing new entrants into the market&rdquo; rather than preparing the bank for sale before an expected May 2010 general election.<br /><br />The government will provide Northern Rock with a further &pound;8bn to fund the spilt. The&nbsp; &ldquo;good bank&rdquo; will be allowed to increase mortgage lending from &pound;4bn to &pound;10bn in 2010 and up to &pound;21bn by 2011.<br /><br />Once the spilt has been completed, UKFI &ndash; the body responsible for managing the government&rsquo;s bank stakes &ndash; will handle both parts of the bank. <br /><br />UKFI, led by new chief executive Robin Budenberg, will decide to sell the good bank to a private buyer when market conditions improve.<br /><br />The good bank will continue to be called Northern Rock and will house &pound;18.5bn of deposits as well as about &pound;10bn of performing mortgages and 76 branches. <br /><br />The rest of Northern Rock&rsquo;s mortgage book &ndash; totalling about &pound;55bn &ndash; plus unsecured loans and Treasury assets will be held in a government-controlled asset company and wound down or sold off.<br /><br />The bank said: &ldquo;The restructure will strengthen the capital and liquidity position of Northern Rock significantly.&rdquo;<br /><br />However, the EU&rsquo;s Kroes has imposed some limits on the bank&rsquo;s ability to write business as a penalty for the &pound;27bn in state aid it has received since it was nationalised last year. These include:<br />&bull;Northern Rock should cut its balance sheet to about a quarter of its size before the crisis;<br />&bull;The bank should not become the market leader in terms of interest rates on loans;<br />&bull;And the bank must limit its retail deposits to slightly less than pre-crisis levels. <br /><br />Suitors for Northern Rock include Virgin Money, which recently applied for an FSA bank licence and&nbsp; National Australia Bank, the owner of Clydesdale and Yorkshire banks.