BNZ owner to join race for 'good bits' of Northern Rock

BNZ's owner, National Australia Bank, is tipped to be one of the suitors in a battle to buy the "good" bits of troubled UK bank Northern Rock.

The British Treasury - which bailed out Northern Rock after its collapse in 2007 this week confirmed that the company had been formally split into two legal entities.

Richard Branson's Virgin Money - set to be renamed Virgin Bank - and National Australia Bank are readying themselves to enter the fray when the state-owned mortgage and savings bank is formally put on the market this year.

Both halves of the business will be run by Rock chief executive Gary Hoffman, while the "good" part known as Northern Rock is readied for the sell-off.

It contains savings balances of about £19 billion ($41.6 billion) plus approximately £10 billion of relatively low risk residential mortgages. There are also a number of wholesale deposits.

Northern Rock is a key part of the British Government's strategy of introducing more competition into Britain's banking market by helping new players compete with the "Big Four" of Lloyds, Barclays, Royal Bank of Scotland and HSBC.

Virgin, which is awaiting a banking licence from the Financial Services Authority, has ambitions to become a serious force in UK banking and is readying a high-profile board of non-executive directors, who are expected to be announced within weeks.

The company last year went as far as holding talks with former Northern Rock chairman Brian Sanderson, although was not able to announce an appointment. It has already made one attempt to buy Northern Rock, prior to its nationalisation.

Virgin will kick off with an internet banking operation with Northern Rock set to be bolted on if it prevails in the competition to buy it.

National Australia Bank has already held a "beauty parade" of advisers ahead of a possible bid.

Two further banks are to come on to the market, made up of branches spun out of Royal Bank of Scotland and Lloyds, but they have up to four years to sell and are likely to wait until the market shows further signs of improvement to maximise the returns to their shareholders from the disposals.

The sales have been demanded by the European Union because of the state aid that both have received.

Northern Rock will service the loans held by the "bad bank", Northern Rock Asset Management, and customers will therefore be able to contact the company using existing telephone numbers and through existing branches. The arrangement could continue after a sale.

Customers are set to receive letters over the next few weeks informing them which half of Northern Rock holds their loans. Northern Rock Asset Management holds £50 billion of home loans, 90 per cent of which are performing, as well as £4.5 billion of unsecured loans.

"I am pleased to announce that we have successfully completed the legal and capital restructure of the business. This helps to build a stronger future and delivers value to taxpayers," Hoffman said.

"All savings accounts have been transferred to the new bank and we are writing to our savings customers to confirm that."

- INDEPEDENT