The race to buy a share of the Bradford & Bingley £12.5 billion mortgage book is entering its final stages with a number of finance groups joining forces to put in their bids.
The latest bidders for a slice of the pie are the Prudential insurance company and Paragon Bank who want to buy up around £3 billion worth of the assets on sale.
Other bidders include: US asset manager Pimco, private equity firms Blackstone and Cerberus and three hedge funds – CarVal, Elliott and Och-Ziff.
The UK government body running the sale – UK Asset Resolution – has already stated it wants to sell the stock of buy-to-let mortgages to more than one buyer.
The £12.5 billion is the lion’s share of the whole £16 billion Bradford & Bingley mortgage book. The remaining £3.5 billion are mortgages in default.
The whole stock was taken over by the government when the lender collapsed in 2008 at the start of the financial crisis.
When completed, the sale is expected to be one of the biggest ever asset disposals by a European government.
A consortium of UK banks has come together to provide what is known as a ‘staple financing package’ of up to £12.5 billion in loans to finance the purchase by the successful bidders.
Experts say the banks themselves have steered clear of the offer because of recent scrutiny of their existing exposure to buy-to-let mortgages by regulators and the Bank Of England.
Insiders say it is expected the assets will be sold at a discount because of their low yield and the result of the bidding process may be released as early as next week.
The sale is part of a larger strategy being pursued by Chancellor Philip Hammond to return to private ownership all the assets bought by the Labour government in 2008 when it bought up the loans and bailed out both Lloyds Banking Group (LBG) and Royal Bank Of Scotland (RBS) as the UK banking system teetered on the edge of disaster.
LBG is expected to be re-privatised later this year as the government now owns less than 6% of the group’s shares. The government also sold the £13 billion loan book of the former Northern Rock to private equity firm Cerberus in November last year.
But Chancellor Hammond has temporarily called a halt to the re-privatisation of troubled Royal Bank Of Scotland (RBS) which was bailed out with £46.5 billion.
The bank’s share price is currently half of what it needs to be to recoup all the taxpayers’ money and it is faced with two major problems which the Chancellor says must be resolved before he is prepared to re-start the sales process.
Williams & Glyn
EC regulations have forced the bank to try to sell its Williams & Glyn brand, but negotiations with both Santander and CYBG (formerly Clydesdale Yorkshire) have been slow and, so far, inconclusive.
The second problem revolves around court proceedings in America where RBS has been accused of selling worthless mortgage backed securities along with other major banks.
The process is continuing, but sources claim the penalty imposed by the US Department Of Justice could be anywhere between $12 billion and $20 billion.