Robin Budenberg to oversee Northern Rock 'good bank' sale

Published on Wednesday 28 October 2009 20:28

ROBIN BUDENBERG, a senior banker at UBS, has been handed the task of selling off part of Northern Rock, after the European Commission yesterday ruled that the nationalised bank be split in two.

Budenberg was confirmed as John Kingman's replacement at the helm of UK Financial Investments (UKFI), just hours after the EC announced that Northern Rock will be divided into a "good bank" and a "bad bank". UKFI manages the government's stakes in bailed-out banks.

The "good bank", which will be renamed Northern Rock plc, is expected to be the first in a series of forced sell-offs as Royal Bank of Scotland and Lloyds Banking Group await similar judgments from the European Commission within weeks.

Gary Hoffman, chief executive of Northern Rock, said yesterday that there was "no timetable" for selling off the "good bank", but it is thought Budenberg will be under pressure to secure a deal before next year's general election.

Northern Rock plc will house savers' deposits, make new loans and it will inherit a proportion of Northern Rock's mortgage book.

The "bad bank", to be called Northern Rock Asset Management, will hold the rest of the mortgage book and repay the remaining government loans. Its assets will eventually be wound down and liquidated.

Hoffman yesterday admitted that it will take Northern Rock ten years to repay the taxpayer.

The nationalised bank has received 26.9 billion in state aid since its collapse in 2008, but it has already repaid 11.9bn. It was announced yesterday that, as part of the restructuring, a further 8bn will be granted to Northern Rock plc to fund mortgage lending, plus 3bn in capital support from the Treasury.

Tesco Bank, which yesterday announced the creation of 1,000 jobs on Northern Rock's home territory in Newcastle, is tipped as the front-runner to buy Northern Rock plc. Benny Higgins, chief executive of Tesco Personal Finance, yesterday refused to comment on the speculation, saying Tesco Bank's expansion to Newcastle was "unequivocally unrelated" to Northern Rock.

Virgin Money, which made a play for Northern Rock before it was nationalised, is also being associated with a potential bid, after it applied to the Financial Services Authority for a banking licence earlier this month.

Another potential buyer is the Clydesdale Bank-owner, National Australia Bank, which said yesterday that it would consider acquisitions that would add to its capability.

The Northern Rock sale, plus significant sell-offs from RBS and Lloyds, could create three new banks with about 15 per cent of the market.

Speculation is mounting that RBS will be forced to part with 312 branches in England and Wales, plus part of its corporate banking operation. It is thought the EC will strong-arm Lloyds into disposing of its 164 Cheltenham & Gloucester branches and about 500 Lloyds TSB branches in Scotland.