Northern Rock faces 10-year payback term
Nationalised lender Northern Rock could take a decade to pay back the taxpayer, its chief executive believes.
The admission came as the European Commission approved plans to split the Newcastle-based lender into a ‘good’ and ‘bad’ bank.
The restructuring will see an extra £8bn granted to fund mortgage lending in the ‘good’ bank on top of the outstanding £15bn loan, as well as up to £3bn in capital support from the Treasury.
Asked if it could take a decade to pay back the funds, chief executive Gary Hoffman said: “There or thereabouts.”
In March last year Northern Rock was aiming to pay back £26.9bn in support by the end of 2010. But it changed policy as it drained funds from the crippled mortgage market.
The ‘good’ bank will hold all of Rock's savings accounts and some of its mortgages, and offer home loans to customers.
The ‘bad’ bank will hold the majority of its loans — more than 90% of which are not in arrears, according to Mr Hoffman — and be wound down.
Northern Rock will also be barred from holding more than £20bn in savings deposits and offering mortgages ranked among the top three deals in the market until the end of 2011 — with the exception of deals aimed at first-time buyers and loans of more than 80% of a property's value.
The Government is keen to encourage more competition in the UK banking sector with Santander — which owns Abbey and Alliance & Leicester — and National Australia Bank expressing interest in a possible deal.
Mr Hoffman said there was no formal sale process under way for the business and the bank's brand had ‘proved very resilient’ despite the financial woes of the business.
“Northern Rock is a brand and a business with a viable future. It is attractive to someone who might want to buy it.”
Despite calls to turn the business back into a building society, Mr Hoffman said it would be ‘difficult’ to sell the bank back to depositors.
On approving the state aid support to the business, Europe's Competition Commissioner Neelie Kroes said: “Structural changes, like splitting of the bank into two entities and a significant reduction of its market presence, will allow the bank to become viable in the long-term and limit distortions of competition.”