07 May 2009

Commission extends in-depth investigation into UK aid package for Northern Rock

The Commission has extended the scope of its in-depth investigation into a UK aid package for Northern Rock, following substantial amendments. The main change introduced is the split of Northern Rock into a 'good' bank, which would continue commercial activities, and a 'bad' bank with most of the previous mortgage loans, which would be wound down.

The Commission has to examine, whether the changes will enable Northern Rock to return to long-term viability while avoiding undue distortions of competition. The extension of the in-depth investigation gives interested parties the possibility to comment on the proposed measures; it does not prejudge the outcome.

The amended plan provides for a split-up of Northern Rock into two new entities, a relatively small bank containing all the good quality assets, the mortgage writing platform and the retail deposits and a "bad bank" which would hold the vast majority of the mortgage loans made by Northern Rock in the past. The "bad bank" would be wound down on a solvent basis, where the UK State would support the losses incurred on the risky mortgage loans made by Northern Rock in the past.

Not all details of the plan have been communicated to the Commission and today's decision requests further information from the UK authorities. The decision also invites third parties to comment on whether the plan's proposals for avoiding undue distortions of competition are adequate.

Press release

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