EU probe into government plans for Northern Rock

02-04-2008

EU probe into government plans for Northern Rock
The European Commission has launched an in-depth investigation into the UK government's plans to restructure Northern Rock.

The EU approved temporary rescue loans given to the troubled lender in December, but long-term restructuring aid will be subject to more scrutiny, to ensure fair competition.

Northern Rock this week said it owed £24 billion to the Bank of England, which it expects to pay back by 2010.

Competition commissioner Neelie Kroes said the investigation was needed "to ensure legal certainty, notably in view of the large scale of the aid measures, the background of current conditions in financial markets and the risks of distortion of competition".

If Northern Rock was allowed to compete with other lenders too aggressively, it would have the unfair advantage of being government-backed.

The Newcastle-based lender said in 2008 the business is expected to be significantly loss-making and does not expect to reach breakeven until 2011.

The nationalised bank will see its operations significantly reduced in order to avoid distorting the market.

Northern Rock said it will limit its share of retail deposit balances to 1.5 per cent in the UK and 0.8 per cent in Ireland, and it will not rank in the top three in any of the major retail savings products categories during 2008.

It also plans to discontinue unsecured lending and slash staff numbers by a third.

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