Britain welcomes EU backing on Northern Rock

(LONDON) - The British government on Wednesday welcomed news that EU competition regulators have approved the state aid contained in plans to break up and sell British nationalised bank Northern Rock.

"The government has today welcomed the European Commission's approval of the legal and capital restructure of Northern Rock," a Treasury statement said.

"The restructure will strengthen Northern Rock's capital position and enable the bank to return to the mortgage market and support the economic recovery as proposed by the government in February.

"Under the restructure, the back book of mortgages will be managed separately to Northern Rock's other businesses."

Under the plan, the bank will be split into a "good bank" that will continue its economic activities, and a "bad bank" management company to run down the remaining assets.

The state aid included recapitalisation measures of up to three billion pounds (4.43 billion euros), liquidity measures of up to 27 billion pounds and guarantees for liabilities of several billion pounds.

According to The Daily Telegraph newspaper, the sale of Northern Rock's "good" assets as early as next year will be handled by UK Financial Investments which manages government holdings in British banks.

Virgin Money and National Australia Bank, owner of Clydesdale and Yorkshire banks, were named in media reports Wednesday as possible buyers.

"The government announced ... in July that one of the conditions for the eventual sale of (Northern Rock) will be that it must promote competition in the banking sector," the Treasury noted on Wednesday.