Cerberus, Morgan Stanley Said to Win in $18 Billion Loans Sale

Cerberus Capital Management, with partner Morgan Stanley, was selected as the preferred bidder for 11.7 billion pounds ($18 billion) of U.K. mortgages from the failed Northern Rock Plc, according to four people with knowledge of the matter.

The U.S. private-equity firm was chosen in a sale overseen by government-owned U.K. Asset Resolution Ltd., said the people, who asked not to be identified because the information is private. The portfolio comprises about 115,000 loans that were packaged into a securitization vehicle called Granite.

The sale attracted interest from some of the biggest names in global finance with investment banks seeking to earn fees from providing financing to private equity buyers and by arranging asset-backed bonds. U.K. Chancellor of the Exchequer George Osborne plans to sell the mortgages to help pay down the national debt.

JPMorgan Chase & Co. also bid for the home loans with partner CarVal Investors LLC, people familiar with the matter said previously. A third group that included Deutsche Bank AG, Blackstone Group LP and Och-Ziff Capital Management Group LLC also bid on the assets, the people said.

Peter Duda, a spokesman for Cerberus at Weber Shandwick, and Morgan Stanley spokesman Hugh Fraser declined to comment. An official at U.K. Asset Resolution, the government body that oversees Granite, wasn’t immediately for available to comment.

‘Next Phase’

“The next phase, which could include a variety of scenarios from a new securitization to taking over the mortgage business” is where “the money could be made,” said Ruben Van Leeuwen, an analyst at Rabobank Nederland in Utrecht.

Citigroup Inc. also bid for the assets in the consortium with Deutsche Bank, said the people. Goldman Sachs Group Inc., which had previously aligned with the same group of companies, didn’t submit a bid, the people said.

Goldman Sachs spokesman Sebastian Howell and Citigroup spokesman Jeffrey French declined to comment on the bid.

Northern Rock funded almost 50 billion pounds of U.K. mortgages through Granite before being nationalized seven years ago. The Granite bonds crashed in value as the bank succumbed to the first British bank run in 140 years.

In the decade to the 2007 bank run, Northern Rock grew rapidly to become the U.K.’s fifth-largest mortgage lender, with assets in excess of 100 billion pounds, according to the U.K. Treasury. The bank relied on wholesale funding and securitization for its expansion, leaving it exposed when markets seized up during the financial crisis. 

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