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Northern Rock formally split in two this morning

The Treasury has confirmed that Northern Rock has been split into two separate operations today, commonly referred to as the good bank and the bad bank, with the bad bank renamed Northern Rock (Asset Management). In simple terms the bad bank will be closed to new mortgage arrangements and will retain a £50 billion mortgage book and £4.5 billion of unsecured personal loans.

While 90% of the mortgage book is not in arrears at this point in time, there is obviously concern about the quality of the mortgages and loans which have been left with the bad bank. This then leaves the remainder of the Northern Rock operation to begin a new period of growth although there is speculation that the operation will be sold to either National Australia bank or Virgin Money.

So far there has been no speculation regarding the amount of money which the good bank will raise in the private sector although there is no doubt that Richard Branson has shown a particular interest in this operation on numerous occasions in the past. However, whether his plans will be scuppered by the emergence of a potential new bidder for the operation remains to be seen.

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