Prudential, Blackrock win battle for £11.8bn Bradford & Bingley loan book
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The government has agreed to sell a portfolio of Bradford & Bingley buy-to-let mortgages to Prudential and Blackstone Group for £11.8bn.
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While the loans were sold for less than their book value of £12.2bn, it was close to fair value considering current low interest rates and was at the upper end of the government's expectations.
UK Asset Resolution, the UK state vehicle for managing the package of distressed debt when B&B was rescued in the financial crisis, struck the deal after a competitive process over several months that is expected to result in financial completion in the coming weeks.
The near £12bn amount will repay a loan made by the Treasury after B&B was taken into public ownership in 2008.
The former building society's customer deposit book was transferred to Santander UK and replaced by loans from the Treasury and the Financial Services Compensation Scheme, which in turn borrowed £15.65bn from the Treasury to fund the loan.
When complete, the sale will reduce UKAR’s balance sheet to £22bn from the £116bn when it was formed in 2010.
“We are determined to return the financial assets we own to the private sector and today’s sale is further proof of the confidence investors have in the UK economy,” said Chancellor Philip Hammond in a statement.
UKAR chief executive Ian Hares said he was pleased with the price achieved and that it delivered "excellent value" for the taxpayer.
"The transaction delivers against our overarching objective to develop and execute divestment strategies which protect and maximise value for the taxpayer whilst treating customers fairly.”
Competition for distressed debt
FTSE 100-listed Prudential and US giant Blackrock beat off rivals for the loans including hedge funds Cerberus Capital Management, CarVal Investors and Elliott Management.
US-based Cerberus, the largest buyer of distressed debt in Europe, completed its purchase of £13bn of toxic Northern Rock loans from UKAR last July.
MPs last month criticised this purchase as being fuelled by tax-avoidance schemes, whereby it lawfully reduces its tax bill to help outbid rivals to buy distressed loans.
George Kerevan, a member of the influential Treasury Select Committee, accused Cerberus of using “prohibitively expensive” fees to stop business customers refinancing their loans with rival lenders.
In a Westminster Hall debate he said: "It claims to make a return for its investors in the range of 17% to 20% per annum, which is a staggering amount. The key way it makes its money is through tax avoidance,” he claimed.
Simon Kirby, the City minister, dismissed the claims and said Cerberus had “maintained the fair treatment of customers” and pointed out that the government had carried out “thorough” due diligence on Cerberus and recouped £5.5bn for the national purse, with £8bn of liabilities off the government’s balance sheet.