EUROPEAN Commission backing for the sell-off of Northern Rock raised hopes today of a government clawback of taxpayers’ cash ploughed into the nationalised bank.
Long-awaited EU approval of restructuring plans under state aid rules gave a boost to Prime Minister Gordon Brown’s hopes of completing a partial sale ahead of next year’s general election.
EU Competition Commissioner Neelie Kroes is poised to endorse a "good bank, bad bank" plan under which Northern Rock will be split in two.
The "good bank", containing its sound assets - including most retail deposits and low-risk mortgage loans - can then be sold off.
The remaining "bad bank", set up to house unsecured debt and mortgage assets including those in its Granite securitisation programme, will remain under state control.
If economic recovery kicks in, it could even be sold of profitably in the long term.
Nearly £27 billion of state aid has gone to Northern Rock since its collapse in 2007. Some has already been repaid, and a partial sale of the bank now could put another multi-billion-pound sum back in the Treasury’s credit account.
The prospect follows months of detailed EC analysis of the restructuring package put forward for approval by the Government after Northern Rock was nationalised in February 2008.
An initial emergency government aid deal for the bank at the start of the economic crisis was cleared rapidly under EU rules on fair competition.
But Ms Kroes made clear to Downing Street last June that she would not be rushed into a decision on the longer term plans, including committing an extra £3 billion of taxpayers’ money to Northern Rock.
But now her verdict, approving the core strategy of splitting Northern Rock, paves the way for Mr Brown to gain a public relations boost if he can dispose of part of the bank and show a return on the money absorbed in the bail-out.
The commission will be watching to ensure that the sale of the "good bank" emerging from Northern Rock does not in itself create a breach of EU rules by reducing competition in the banking sector.
That could occur if the successful bidder was one of the UK’s bigger mortgage lenders.
An EU rejection of the restructuring plan for Northern Rock would have raised questions about Mr Brown’s handling of the economic crisis.
As it is, the Treasury’s job now is to try to secure a good price for taxpayers from the saleable part of the bank whose name symbolised the economic downturn.