Rock pays back £2.2bn

11-01-2008

Rock pays back £2.2bn
Northern Rock is to sell mortgage assets worth £2.2 billion to JPMorgan, allowing it to pay back some of the cash borrowed from the Bank of England.

The portfolio of assets covering lifetime home equity release mortgages covers around two per cent of the troubled lender's assets and will be sold at a premium of 2.25 per cent – or £50 million – over its balance sheet value.

The £2.2 billion raised will be used by Northern Rock to reduce its funding from the Bank of England – currently estimated at £26 billion.

The Northern Rock board took the decision to sell the mortgage book as the interest the bank earns on it is less than the penalty rate paid to the Bank.

Andy Kuipers, chief executive of Northern Rock, said: "This is a relatively small transaction, representing around two per cent of Northern Rock’s gross assets, but it is a positive development in the company’s ongoing strategic review.

"It illustrates the quality of our assets, which has enabled us to achieve a sale at a premium despite continuing difficult financial markets, and will allow the company to reduce its debt to the Bank of England."

However, there are some concerns from analysts that Northern Rock may have let go of some of its best assets.

The saga of Northern Rock continues to roll on, with chancellor Alistair Darling warning shareholders that nationalisation could still be possible.

He told the Treasury select committee: "I would like to find a private sector solution, if that is at all possible, but that may not be possible at the end of the day."

Currently the front runners to buy Northern Rock – both named as preferred bidders – are Virgin Group and Olivant.

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