US private equity firm buys Northern Rock mortgages worth £13bn

The government has sold £13bn of the mortgage assets it attained after saving Northern Rock during the financial crisis [1].

The group overseeing the sale on behalf of the government, UK Asset Resolution (UKAR), has agreed to sell the Granite portfolio of securitised loans in what is the biggest financial asset sale by a government in Europe [2].

In total, 120,000 residential mortgages are included in the transaction, with an average outstanding balance of approximately £100,000 [1].

In the summer of 2007, following the beginning of the financial crisis, investors no longer sought to buy Granite bonds, fearing losses on the mortgages contained in the vehicle. This, in turn, caused a funding crisis for Northern Rock that led the government to nationalise the bank in 2008 [3].

On Friday, the Treasury said in a statement: “We are now clear that taxpayers will get back more money from Northern Rock than they were forced to put in during the financial crisis, and today’s sale means that the government has exited over 85% of the assets of the former bank.” [1].

However, with the economy and the mortgage market back in reasonable health, the loans housed in Granite are performing well. The government started a bidding process six months ago that attracted interest from the Royal Bank of Scotland; a consortium including Goldman Sachs, and other potential buyers [3].

In a statement, the Treasury said that UKAR had sold the mortgages for £280m more than their book value. The sale means UKAR can pay back £5.5bn of its loan from the government [1].

[1] The Telegraph. ‘Government sells £13bn of former Northern Rock mortgages to US private equity firm’.

[2] The Financial Times. ‘UK Treasury sells £13bn of Northern Rock mortgages to Cerberus’.

[3] The Guardian. ‘Northern Rock mortgages worth £13bn sold to US private equity firm’.