Northern Rock, the state-owned U.K. bank, announced its year-to-date results today and provided limited details on its proposed restructuring. The bank stated that it supports the plan of Chancellor of the Exchequer, Alistair Darling, to split the bank into two entities:

  • BankCo, which will be licensed by the FSA as a deposit taker, will undertake new lending. BankCo will take over the bank’s branch and mortgage origination network and will hold the bank’s retail and wholesale deposits and a portion of the bank’s unencumbered mortgage portfolio; and
  • AssetCo, which will hold the remainder of the bank’s assets, including a majority of the bank’s existing mortgage holdings and the bank’s interest in the Granite securitization and covered bond programs, and will be responsible for the existing U.K. government loan to the bank and the bank’s non-deposit wholesale funding arrangements.

The restructuring is subject to the approval of the European Commission and the Financial Services Authority. If the restructuring is successful, the government plans to sell BankCo, which represents the healthier portions of the bank, although the timing of any such sale is uncertain.