Extracts from the Midday briefing on EC approval of the restructuring package for Northern Rock by Jonathan Todd, Spokesperson of Neelie Kroes, Member in charge of Competition.
Type: Summary of press conference
End production: 28/10/2009
At the EC press briefing of 28/10/09, Jonathan Todd, Spokesperson of Neelie Kroes, Member in charge of Competition, told journalists that the European Commission has approved under a package of measures to support the restructuring of UK mortgage bank Northern Rock.
The bank will be split into a "good" bank that will continue the economic activities of Northern Rock and a "bad" bank, an asset management company which will run down the remaining assets.
Following an in-depth investigation launched in April 2008, which was extended due to substantial amendments to the original plan in May 2009, the Commission has concluded that the aid was compatible with the EU rules on state aid and with the Commission's Communications on the application of the state aid rules to banks in times of crisis.
Northern Rock collapsed at the onset of the credit crunch in autumn 2007 after savers staged a nationwide run on the bank. It was then nationalised in February 2008.
Only the original language version is authentic and it prevails in the event of its differing from the translated versions.
||General view of the press conference room
||SOUNDBITE (in ENGLISH) by Jonathan Todd, Spokesperson of Neelie Kroes, Member in charge of Competition: The Commission has decided to approve the restructuring package for Northern Rock. The Commission is taking the view that, in view of amendments made at the request of the Commission, the package is now fully compatible with the state aid rules, in particular as interpreted by the guidelines on restructuring aid for banks which we adopted in July. Under these guidelines, banks in the current financial crisis must respect the general rules on restructuring of companies. In particular there must be a significant own contribution to the cost of restructuring made by the bank, there must be restructuring to ensure future viability without further injection of public money and there must be a reduction in activities to compensate for the distortion of competition caused by the public subsidy.
||Cutaway of press
||SOUNDBITE (in ENGLISH) by Jonathan Todd: In the case of Northern Rock, there are very considerable amounts of public money. The financial support from the UK government includes recapitalisation measures of up to GBP 3 billion, liquidity measures of up to GBP 27 billion and guarantees covering several more billions of pounds of liabilities. Under the package approved by the Commission, the bank will be split into a "good" bank that will continue the economic activities of Northern Rock, and a "bad" bank, which will essentially be an asset management company that will run down the remaining assets but that will no longer be active on the market. The "good" bank's balance sheet will be reduced to around a quarter of Northern Rock's balance sheet before the crisis and the "good" bank will be subject to a number of restrictions on its commercial activities. For example, it will not be able to be the market leader in terms of interest rates on loans, there will be a cap on its lending to less than 1/3 of the 2008 levels of lending by Northern Rock and a cap on retail deposits of slightly less than the pre-crisis level. So overall, the Commission is satisfied that the package as amended is now fully in line with the state aid rules.
||Cutaways (4 shots)