The Chancellor will this week outline plans to sell nationalised lender Northern Rock to a player with little presence in the mortgage market under plans to revive competition in the banking sector, it was reported today.
Alistair Darling’s White Paper on banks and regulation reform – expected on Wednesday – will reveal that the Treasury aims to reignite rivalry between banks after the financial crisis lessened competition through the consolidation and collapse of major players, according to the Financial Times.
Many deals – such as Lloyds’ rescue takeover of HBOS – were waved through as financial stability became the overriding concern.
And it is understood that Mr Darling now wants to see new players emerge, using Northern Rock’s sale as a way to bring on board an entrant looking to gain market share and a high street foothold.
This week is also expected to see UK Financial Investments (UKFI) – the body charged with managing Government-owned stakes in banks – announce options for offloading taxpayer holdings in Royal Bank of Scotland and Lloyds Banking Group in a strategy update.
It is thought UKFI will stress the need to wait until market conditions allow taxpayer value to be realised before selling the stakes.
It emerged over the weekend that Northern Rock had begun offering mortgages to existing customers for the first time since late 2007 in a move widely seen as a way to make it more attractive to bidders and smooth the path for a sale before the end of the year.
Several suitors have already reportedly been identified, including Virgin Money, which tried to buy Northern Rock at the time of its collapse in 2007 before the group’s eventual nationalisation in February 2008.
However, another mooted bidder – Tesco – is now thought to have been discounted.
As part of its sale plans for Northern Rock, the Government is preparing to split the bank in two, hiving off its most toxic loans and assets into a so-called “bad bank” which will then enable it to sell on the customer savings and network of 70 branches.
The bad bank would likely remain in Government hands and may be run by UKFI.
This week’s White Paper - delayed from last week because of a clash with other key Government releases - will also finally answer speculation over a power struggle between those responsible for policing the financial sector when it sets out the future of banking regulation.
The Bank of England, Treasury and Financial Services Authority (FSA) have reportedly been at loggerheads as regulators vie for a meatier role – although all three have played down rumours of a spat.
