The legal and capital restructure of United Kingdom mortgage lender Northern Rock
into two separate companies completed in the new year.
The restructuring plan finishes nearly two years after the government took control of the firm, which is based in Newcastle in Northumberland in North England, known for its iconic Angel of the North (pictured).
The European Commission
(EC) recently approved the company's restructuring
plan, a move praised by Her Majesty’s Treasury
as a way to strengthen the firm’s standing in the mortgage market.
The EC said at the time the bank would split into a ‘good bank’ that will continue economic activities and a ‘bad bank’ that will run down the remaining assets. Ultimately, the EC intends the restructuring to restore long-term viability to the ‘good bank,’ which will eventually be sold to a third party, and allow for the orderly liquidation of the ‘bad bank.’
The split results in Northern Rock plc
, a new savings and mortgage bank that will continue to offer new mortgage products. The company holds and services retail savings balances of about £19bn (US$30.4bn) and residential mortgages worth about £10bn.
"All savings accounts have been transferred to the new bank and we are writing to our savings customers to confirm that," said chief executive Gary Hoffman in an online statement
. "We are also writing to mortgage customers of the new bank to confirm that their accounts have been transferred as part of the restructure."
The split also results in the formation of Northern Rock Asset Management
, the renamed version of the existing firm that will service the majority of existing mortgages but not offer any new mortgages or borrowing options to consumers.
The split took effect January 1, and both companies will operate under government ownership, according to a bulletin on the Northern Rock's Web site
Northern Rock, once the fifth-largest UK lender, ran into capital woes when the UK securitization market dried up, depriving the bank of its main funding source, according to the EC. The bank came into UK government control in February 2008.
Some have seen the protracted stabilization efforts the UK government took as support for a more cohesive role the Federal Reserve
should play in overseeing the US financial system.
New York Federal Reserve Bank
president and CEO William Dudley, for example, in a recent speech said Northern Rock stands as a lesson to the US
that the Fed's monetary policy, lender of last resort and supervisory functions should not be separated.
Write to Diana Golobay