The Creation and Sale of Northern Rock Plc: HM Treasury
HC 20, Report by the Comptroller and Auditor General, Session 2012-13
- National Audit Office (NAO)
- TSO (The Stationery Office)
The report 'The Creation and Sale of Northern Rock Plc: HM Treasury (HC 20)' concludes that the Treasury's decision in early 2009 to support mortgage lending by splitting Northern Rock in two was reasonable, but based on a business plan which events have shown to have been optimistic.
The Treasury went ahead with the split without further detailed analysis. However, the alternative of selling the deposits and closing down Northern Rock was unlikely to have lead to a significantly better outcome.
Although targets were not met, lending by Northern Rock plc was over 20% of all mortgage lending during 2010 and 2011. The financial performance of the business was worse than planned, principally owing to the continuation of low interest rates.
In 2011, UK Financial Investments (UKFI), a body owned by the Treasury, reviewed a full range of options for the future of Northern Rock plc. The NAO considers that UKFI's recommendation for an early sale was the best way to minimise the losses.
The sales process went well and UKFI improved the overall offer from Virgin Money. The NAO expects the taxpayer to lose £480 million of its original £1.4 billion investment in Northern Rock plc. If account is taken of the likely value of Northern Rock assets remaining in public ownership, UKFI expects that the taxpayer will recover all of the cash provided.
There may however be a present cost to the taxpayer of around £2 billion by the time the assets are fully wound down, but this should be seen as part of the overall cost of securing the benefits of financial stability during the financial crisis.
|Format||Paperback||Published||18 May 2012|
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