Northern Rock takes new step to break-up and sale

Northern Rock is to begin looking for new non-executive directors after EU regulators approve its split into two this week.

It has also emerged that all the controversial "together" loans of up to 125 per cent of the value of the homes they were linked to will go into Northern Rock Asset Management, the so-called "bad bank", alongside those linked to the "Granite" securitisation vehicle.

It is understood that directors of the existing Northern Rock will be split between the two boards of the new companies, to enable continuity to be maintained. They will be complemented by new appointments. However, it is not yet clear which of the two companies will retain the services of Northern Rock's chief executive, Gary Hoffman, and chairman, Ron Sandler.

Northern Rock PLC – the "good bank" – could be highly attractive to Mr Hoffman. He currently earns £700,000 a year but his future pay has not yet been agreed. An arrangement guaranteeing a substantial bonus for securing a successful sale for the taxpayer would be an incentive available to the boss of the good bank.

There is already a precedent for this with state-supported banks – the Royal Bank of Scotland chief executive, Stephen Hester, has a contract heavily laden with incentives and could net £10m if his turnaround plan succeeds and a healthy RBS is returned to private ownership.

Northern Rock has said it expects the split to be completed by the new year, although the timetable could slip because of earlier delays to the EU approval. The plans also have to be approved by the FSA.