The UK government has sold $20 billion (£13 billion) of former Northern Rock mortgages and loans to US private equity firm Cerberus in the largest ever financial asset sale by a European government.
The loans were acquired by British taxpayers when Northern Rock was nationalized during the financial crisis. Proceeds of the sale will be used to pay down the UK national debt.
Cerberus will in turn sell $5 billion (£3.3 billion) of the Northern Rock loans to TSB, which was recently bought by Spanish bank Sabadell.
“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,” said the UK Treasury in a statement.
“Today marks another major milestone in clearing up the mess left by the financial crisis,” said UK finance minister George Osborne.
The government said there will be no changes to the terms and conditions of the mortgages involved and all customers affected will be contacted to explain the change of ownership.
“Customers do not need to take any action,” said UK Financial Investments Limited (UKFI). “The continued fair treatment of customers was a key consideration for UK Asset Resolution Limited (UKAR) in the choice of buyers.”
New York based Cerberus, named after a mythical three-headed dog that guards the gates of hell, beat six rival firms including JPMorgan and Blackstone to clinch the deal. UKFI was advised by investment bank Moelis.
UKFI said the proceeds of the sale include a £280 million premium over the book value of the loans.
“This action forms part of UKAR’s ongoing process to facilitate the orderly management of the closed mortgage books of both Bradford & Bingley and Northern Rock to maximise value for taxpayers,” added UKFI.
The government said UKAR’s balance sheet has been reduced from £115.8 billion to £42.3 billion since it was formed in 2010.
UKFI said Northern Rock’s balance sheet was £104.4 billion when it was nationalized in 2008 and the balance sheet of Northern Rock’s legacy mortgage book managed by UKAR will be £11.3 billion after the transaction.