Financial Regulatory Forum

N.Rock capital below minimum as waiver expires

July 1, 2009

Pedestrians walk past a branch of the Northern Rock bank in the City of London   LONDON, July 1 (Reuters) – UK state-owned bank Northern Rock’s capital has fallen below the regulatory minimum but it has been cleared to continue business as normal.
   Northern Rock <NRKx.L> said on Wednesday the expiration of a waiver on how its capital was dealt with had pushed down its capital but it will address the situation through a legal and capital restructuring already outlined.
   The regulator will not restrict activities prior to the plan being implemented, the bank said.
   Britain’s Financial Services Authority (FSA) last July granted it a waiver to use Tier 2 capital to allow it to meet its minimum regulatory capital. That waiver expired on Tuesday.
   Northern Rock’s total capital ratio under the waiver was 10.8 percent at the end of 2008, but has fallen as the bank expects to be “substantially loss making” this year.
   In March the UK Treasury said it would take any steps needed to ensure the bank met its capital requirements.
   Northern Rock was nationalised in early 2008 after becoming the first major British casualty of the credit crunch in September 2007 when rising wholesale borrowing costs left it unable to fund itself.
   Northern Rock’s restructuring into two separate units — BankCo and AssetCo — cannot take place until the European Commission has approved state aid for the bank. That clearance is unlikely before the autumn. [ID:nLQ888052]
   Up to 3 billion pounds of additional capital will be provided for BankCo and AssetCo under the plan.
   Suitors are expected to cast an eye on BankCo, which is expected to include the bank’s new loans, deposits, better quality assets and branches.
   Tesco <TSCO.L>, Britain’s biggest retailer, is unlikely to be interested in a bid, an industry source said, following a newspaper report that it had shown a provisional interest. [ID:nLQ888052]
   Suitors may not emerge until the split of the bank’s assets is clearer, another industry source said.

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