Gordon Brown was last night accused of losing control of Northern Rock after it emerged that the bank\’s best mortgages have been sold on to a little-known offshore company based in the Channel Islands.

Under an agreement entered into by the previous Rock board, control over more than £47 billion of the bank\’s prime mortgages was passed to Granite, a separate offshore company backed by City investors.

The Granite securitisation has been public knowledge for months and common knowledge in the City all along.

3 thoughts on “Granite?”

  1. I think it is more the point that granite is not part of the nationalistaion.

    Considering that there are 80% prime mortgages in NR as a whole, but half of these are in Granite; what have the taxpayers nationalised…a business with less than 50% prime mortgages!

  2. cityunslicker,

    I think I will have to live down to my avatar here because I am obviously missing something.

    Lets say NR had 100 mortgages on its books of which 80 were prime, that leaves 20 as sub prime.

    If half of these prime mortgages, 40, are now in Granite that leaves 40 prime mortgages left in NR along with 20 sub-prime mortgages from a total of 60 mortgages.

    By my simpleton maths that still leave NR with of 50% prime mortgages.

    Now this is still not good for us shareholders if the mix has dropped, although John B on his blog seems to think it isn’t a problem at all.

  3. There isn’t a meaningful definition of sub-prime in the UK, so that makes life a bit confusing to start with.

    However, all Northern Rock’s mortgage assets (as listed in its books) are ‘prime’ in the sense of having at least 95% house price cover. This is true both for the mortgages within and without Granite.

    However, Northern Rock also has £7bn of unsecured loans on its books. This includes credit cards, overdrafts and car loans – it will also include the unsecured component of any 95-30 mortgages NR has granted (including the ones sold to Granite and the ones not sold to Granite alike – selling unsecured debt to an SPV is tricky).

    Granite’s existence doesn’t change the risk profile of NR’s mortgage debt, nor does it change NR’s volume of unsecured loans.

Leave a Reply

Your email address will not be published. Required fields are marked *