UK denies it nationalised ‘rubbish’ mortgagesBy George Parker and Peter Thal Larsen
Published: February 20 2008 22:01 Last updated: February 20 2008 22:01
Financial Times,London,UK, ft.com
Gordon Brown on Wednesday denied the government was nationalising “rubbish” mortgages at Northern Rock after it became clear that over a third of the bank’s assets will remain outside state control in Granite, its Jersey-based trust.
Conservatives claimed Granite’s assets of £45bn included some of the best quality Northern Rock mortgages, leaving the taxpayer exposed to more risky loans on the remainder of the bank’s £110bn balance sheet.
The exclusion of Granite, Northern Rock’s special purpose financing vehicle, from the nationalisation stunned many MPs and left the government scrabbling to explain the relationship between the nationalised Rock and its Jersey offshoot.
Mr Brown argues the government is not exposed to Granite, a separate legal entity, and denies the special vehicle has creamed off the best Northern Rock mortgages to raise finance on the bond market.
“This will have no effect on the sale of Northern Rock to a private buyer,” Mr Brown told the Commons.
Available data do not support opposition claims Granite has the Rock’s best mortgages. They show its mortgages have an average loan size of £117,263, while the weighted average size of the loan to the value of the property is 77.05 per cent.
That is higher than Northern Rock’s last reported average ratio of 60 per cent, suggesting the rest of the bank’s book is of higher quality than the mortgages in Granite, although the figures could be distorted by the Rock’s rapid expansion.
On Wednesday, George Osborne, shadow chancellor, insisted that Northern Rock would have sold on its best mortgages, leaving the taxpayer with what critics have called “rubbish” loans.
Alistair Darling, chancellor, wrote to Vincent Cable, Liberal Democrat Treasury spokesman, to try to maintain his support for nationalisation. “The government has not provided any guarantee arrangements to Granite bondholders,” Mr Darling told him. “Contrary to some suggestions, the Financial Services Authority advises that Northern Rock’s mortgage book is of good quality and its assets exceed its liabilities.”
Mr Cable said he was satisfied it would be legally impossible to nationalise Granite, but said it was highly likely Northern Rock would have hived off its best mortgages to the Jersey trust to raise finance at the cheapest rate.
The Lib Dem deputy leader also questioned government assurances that Northern Rock was not obliged to replenish Granite with new mortgages in future.
The complexities of Northern Rock’s financing arrangements provided further ammunition for Mr Osborne’s claim that parliament needs more time to study the emergency bill to nationalise the bank.
That bill could become law tonight, but Tories and Liberal Democrats are pressing for amendments to ensure a nationalised Rock does not distort banking competition.
The Treasury indicated it could accept that amendment, but will resist an amendment to subject the bank to scrutiny under the Freedom of Information Act.
Shareholders in Northern Rock on Wednesday expressed dismay at the basis on which their compensation will be calculated. A draft order published by the Treasury says an independent valuer will calculate a price based on the assumption that the bank is unable to continue as a going concern and is in administration. That implies shareholders will receive little or nothing.
Its not Northern Rock but Jersey Rock!
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