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EC backs Northern Rock split

The European Commission has approved the Government’s plans for splitting Newcastle-based Northern Rock in two - a “good” bank and a “bad” bank.

The “good” bank will continue Northern Rock’s economic activities, while the “bad” bank will become in effect an asset management company running down the remaining toxic assets.

Prime Minister Gordon Brown now plans to sell off the former and keep the latter under state control.

Approval of the split under EU state aid rules, including another Government cash injection, was announced by Europe’s Competition Commissioner Neelie Kroes, who said: “The failure of Northern Rock would have had major detrimental effects on the UK mortgage market and the overall financial stability of the UK economy.

“Important structural changes, including the split 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.

“This decision demonstrates once again that the EU’s state aid rules provide an appropriate framework to allow state support for a sustainable restructuring of banks without giving individual banks an unfair competitive advantage.”

James Ramsbotham, chief executive of the North East Chamber of Commerce, said: “Northern Rock is a great North East financial institution that has been at the very heart of our community for more than half a century.

“A lot of very talented people have worked incredibly hard to rescue it from the impact of the global downturn and today’s announcement is the latest milestone in its recovery. We expect that it will continue to rebuild and that by separating the two sides of the business will ensure it has a strong, healthy future for centuries to come.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .