Photographer: Chris Ratcliffe/Bloomberg

U.K. Reboots $20 Billion Sale of Mortgages After Brexit Break

  • U.K. has owned Bradford & Bingley loans since financial crisis
  • Non-disclosure agreements sent to potential bidders this week

The British government restarted the sale of as much as 15.7 billion pounds ($20 billion) of Bradford & Bingley mortgages after the process was paused in the wake of the Brexit vote.

U.K. Asset Resolution Ltd., the body that has managed Britain’s fully nationalized banks since the financial crisis, is sending non-disclosure agreements to prospective buyers this week, according to three people with knowledge of the matter. The move follows a hiatus to assess market conditions after the nation’s June 23 vote to leave the European Union, said the people, who asked not to be identified because the sales process isn’t public.

Chancellor of the Exchequer Philip Hammond is following in the footsteps of his predecessor George Osborne in looking to dispose of bailed-out banking assets stuck on the U.K.’s books since the crisis. Selling the Bradford & Bingley loans will help offset the government’s losses from the sliding share prices of state-backed Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc.

“We have received the necessary approvals and can confirm that we have launched the first phase of a program of asset sales that could ultimately enable Bradford & Bingley to repay its 15.65 billion-pound loan from the Financial Services Compensation Scheme,” UKAR said in an e-mailed statement. “This process remains commercially sensitive and there is nothing more we can say at this time.”

In Osborne’s last budget, presented in March, the government proposed raising at least 15.7 billion pounds by selling the Bradford & Bingley mortgages within two years. Although the aftermath of the EU referendum derailed the process amid whipsawing markets and Osborne’s ouster, prices have stabilized to enable the government to push ahead, said the people.

Test Appetite

UKAR isn’t outlining the value of the initial tranche it plans to sell at this stage and will test appetite from potential bidders for the loans, which are predominantly landlords’ buy-to-let mortgages, the people added. The Treasury has previously said any divestment would be subject to market conditions and need to ensure value for British taxpayers.

Britain’s finance ministry said earlier this year that it received “highly confident” letters from a group of British lenders setting out how they would provide debt funding to support a major sales program of the Bradford & Bingley mortgages. The U.K.’s biggest banks want to finance the disposal because it could help them save hundreds of millions of pounds in annual contributions to the Financial Services Compensation Scheme deposit-protection program.

The largest lenders have collectively paid more than 2 billion pounds to the FSCS since 2009 to cover interest on a loan from the Treasury taken out to fund the 2008 rescue of Bradford & Bingley, according to data on the agency’s website. The proceeds from the asset sale are earmarked for repaying the loan. UKAR itself is headquartered in Bingley, the Yorkshire town where the collapsed lender was based.

A successful disposal would follow the sale of 13 billion pounds of loans from collapsed bank Northern Rock held by UKAR to U.S. private-equity firm Cerberus Capital Management in November. Credit Suisse Group AG is helping oversee the process, while Moelis & Co. is also advising the government. Bradford & Bingley’s branch network was sold to Spain’s Banco Santander SA in 2008.

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