At the time of the Northern Rock crash, there was much interest expressed by politicians in the funny is-it-on or is-it-off balance sheet shenanigans known as Granite.
The latest statement to be laid before the House of Commons shows that granite does indeed take some wearing away. It says in part:
“The legal entity previously called Northern Rock plc, which has retained the balance (ie poorer quality – Ed) of Northern Rock’s mortgage book (including mortgages allocated to the Granite securitisation and the covered bond programme), the Government loan, its other borrowings, derivatives and certain wholesale deposits held on behalf of its Granite securitisation and covered bond programme, has been re-named Northern Rock (Asset Management)plc."
This company has been given a Treasury guarantee of £18,000 million (£18bn) for which it will "pay an appropriate fee" to ensure it doesn't get a commercial advantage.
To ensure the company will continue to operate above the minimum regulatory capital requirements, NRAM will also have a guarantee of up to £1.6 billion if required.
What seems clear is that the assets of NRAM are nothing like as bad as some would have the former shareholders believe. Granite was alleged to have creamed off lots of good mortgages when it was running full tilt. So the popular description of NRAM as the "bad bank" may just be to keep us thinking that it's worthless. Which it far from is, as the price tag when it's sold will undoubtedly show....
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