Sabadell eyes Northern Rock's mortgage portfolio

Reports in Spain claim the Catalonia-based bank is the frontrunner to buy the portfolio of what were some of Northern Rock’s riskiest home loans

Northern Rock almost caused the first run on a British bank in a century when it had to be nationalised in 2007 (Getty)

The Spanish bank Sabadell, which took over TSB for £1.7bn this summer, is now looking at snapping up a £13bn portfolio of former Northern Rock mortgages from the taxpayer.

Such a sale would be a significant milestone in the closure of the former building society, which almost caused the first run on a British bank in a century when it had to be nationalised in 2007.

Reports in Spain claim the Catalonia-based bank is the frontrunner to buy the portfolio of what were some of Northern Rock’s riskiest home loans, known as Granite, from UK Asset Resolution, the organisation running down the so-called “bad bank” parts of Northern Rock and Bradford & Bingley.

The Chancellor, George Osborne, fired the starting gun on the sale of the Granite portfolio in his March Budget.

UKAR appointed Credit Suisse to head a potential sale in April. Unlike many loan books sold by various banks since the financial crisis, a sale of Granite, which was formed by Northern Rock in 2001, is complicated because much of its debt was securitised.

At the last count, Granite had £13.22bn of mortgages which were funded to the tune of £9.05bn of securitised debt with the rest funded by Northern Rock Asset Management’s own balance sheet.

Although the portfolio is massive, the mixture of assets and liabilities involved means that UKAR would receive only a few hundred million pounds for it, with Spain’s Expansión newspaper yesterday suggesting a price of £400m.

But the sale of Granite would be a major step for UKAR’s management, under chief executive Richard Banks, in reducing the size of the taxpayers’ outstanding exposure to failed banks. At the time of UKAR’s full-year results in June he said he hoped to see the sale of Granite early in 2016 and that it had already attracted potential buyers.

UKAR has sold off more than £50bn of Northern Rock and Bradford & Bingley loan portfolios. In addition, it also has some £5.5bn of self-certified mortgages and £22bn of buy-to-let mortgages.

If Sabadell were to win the auction it would probably push Granite into TSB, boosting the former Lloyds subsidiary’s balance sheet considerably. Until the start of this year, TSB had been out of a significant portion of the UK home-loan market for a number of years because it had no direct link to mortgage brokers. It restarted dealing with brokers in January and had done £1.9bn of business through them by June.

Royal Bank of Scotland, Citi, Goldman Sachs and Blackstone have all been reported to have shown interest in the Granite auction.

Sabadell, TSB and UKAR all declined to comment yesterday.