Recovering Northern Rock draws interest of cash-rich Chinese banks

Published on Saturday 6 March 2010 13:13

CASH-RICH Chinese banks are thought to be eyeing a bid for Northern Rock as figures this week confirm it as an increasingly attractive target.

They will show that although the publicly owned bank made heavy losses in 2009, the last six months of the year saw a significant improvement. The company, which has been split into a "good" and "bad" bank, will be reporting its last results as a single entity. Record low interest rates and improved debt management are expected to have improved the bank's mortgage arrears position.

Meanwhile financial conditions have stabilised enough for the Treasury to be able to remove the 100 per cent guarantee on savings deposits at the end of May.

The bank's improving fortunes along with increased stability in the UK mortgage market are expected to heighten interest from the long list of potential suitors said to be keen to acquire the "good" bank and its 19 billion in retail savings and 10bn mortgages book

Although a number of well-known names in UK banking have been tipped as front-runners, Martin Hughes, founder of hedge fund manager Toscafund, said he would be "amazed" if a Chinese bank was not looking at a bid as a move to get a foothold in the UK market.

Hughes, who was part of a consortium that tried to buy Northern Rock two years ago, said the bank would be very attractive to potential Chinese bidders.

"The Chinese want to be international bankers with a global presence and also need to spend excess capital," he said.

Restrictions on ownership in banking in other major markets also makes the UK a particularly attractive location.

"The Chinese banks could try and offer products direct here but it would make more sense to enter the market by buying an existing player."

It is thought the UK Government would look favourably on a strong foreign bank entering the market, injecting liquidity and boosting confidence in the housing market. But foreign bidders for the bank, which has been in public ownership since February 2008, are likely to face stiff competition from existing players in the UK market.

Clydesdale-owner National Australia Bank was said to be sounding out advisers over a possible bid earlier this year, while Virgin Money – which almost succeeded in buying the business before it was nationalised – is also a likely contender.

Northern Rock's more toxic loans have been retained in the existing bank, renamed Northern Rock Asset Management, which will remain in public ownership. The asset management arm, which has about 50bn in mortgages and a 4.5bn portfolio of unsecured loan accounts, will not be taking on new business.