U.K. Plans to Raise $22 Billion From Bradford & Bingley by 2018

  • Proceeds would repay debt to deposit protection program
  • Treasury cuts target of sale proceeds from RBS in budget

The U.K. government plans to raise at least 15.65 billion pounds ($22 billion) by selling the mortgages of rescued lender Bradford & Bingley Plc within two years.

Britain is “exploring further sales” of loans managed by UK Asset Resolution Ltd. after selling 13 billion pounds of failed lender Northern Rock’s assets to U.S. private-equity firm Cerberus in November, the Treasury said in its budget published on its website on Wednesday. The government said it expects the sales to conclude before the end of the fiscal year that concludes in March 2018.

Chancellor George Osborne is facing a setback in his plans to raise funds by selling shares in bailed out British lenders Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc amid whipsawing markets ahead of the U.K.’s June 23 referendum on European Union membership. The sale of the UKAR assets would help repay a 15.65 billion-pound debt to the nation’s Financial Services Compensation Scheme deposit protection program, the Treasury said. 

‘Highly Confident’

The Treasury said it had received “highly confident” letters from a consortium of British lenders setting out how they would provide debt funding to support a major sales program of Bradford & Bingley mortgages. Any divestment would be subject to market conditions and ensure value for money, it said.

Britain’s biggest banks will be more eager than usual to finance buyers of the loans because a sale could save them hundreds of millions of pounds on their annual levy for the deposit protection program. The largest lenders have collectively paid more than 2 billion pounds to the FSCS since 2009 to cover interest on the loan from the Treasury taken out to fund the 2008 rescue of Bradford & Bingley, according to data on the agency’s website.

While Osborne has been forced to delay the full return of Lloyds to the private sector, the government is still committed to offering shares to consumers before the end of March next year, according to the budget document. It said it would also “shortly receive” the final 1.2 billion-pound payment from RBS for the retirement of its dividend access share, which gives the U.K. preferential rights to capital distributions.

From both the DAS and share disposals, the government said it expects to raise as much as 25 billion pounds from RBS by the end of 2020. That’s a downward revision to its original target to exceed that amount from share sales alone. Osborne is facing a shortfall in the nation’s finances from a slump in the value of RBS stock in recent months, with the government’s 73 percent stake in the lender currently valued at about 19.9 billion pounds.

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