(Updates with European Commission response, paragraph 3)
LONDON Jan 23 The European Commission is
threatening to veto the British government's revised plan to
allow nationalised mortgage bank Northern Rock to lend more, the
Guardian reported on Friday.
The newspaper said in an unsourced report that European
Union Competition Commissioner Neelie Kroes and her senior
officials believed the British government's latest instructions
to Northern Rock may break EU state aid rules.
A European Commission spokesman said its existing
investigation into the restructuring of Northern Rock would take
account of any proposed changes to the bank's role.
"As far as I am aware there is no revised plan," the
spokesman said. "The UK government has not yet communicated to
us the precise details of what they are planning to do with
"Clearly we will have to take into account any amendment to
the role of Northern Rock in the context of our ongoing
investigation into the restructuring aid."
No one was available for comment at Northern Rock or the
Another newspaper, the Daily Telegraph, reported the British
government was considering injecting as much as 10 billion
pounds ($13.80 billion) into Northern Rock to use the
nationalised bank to ramp up mortgage lending. [ID:nLM154127]
Northern Rock became the first British casualty of the
credit crunch and was nationalised in early 2008.
Since then, it has been shrinking its mortgage book and
focusing on repaying a government loan.
However, the bank said on Monday it was slowing its rate of
redemptions to support the government's policy of increasing
The move was announced as part of Prime Minister Gordon
Brown's latest package to help banks and unfreeze lending.
The European Commission opened an in-depth investigation of
the initial restructuring plan for Northern Rock in April last
year, saying it needed to look at potential market distortion.
The Daily Telegraph said the Treasury had yet to make a
final decision on whether to inject up to 10 billion pounds into
Northern Rock is preparing to unveil a new business plan in
the next few weeks and Treasury officials have been in contact
with the European Commission as they need a waiver from EU state
aid rules, it said.
The injection into Northern Rock was likely to be in the
form of equity and a new loan, the Daily Telegraph said. It would
include the 3 billion pounds the government has already
earmarked to be converted from part of its loan to the bank into
equity, it said.
(Reporting by Adrian Croft in London and Ingrid Melander in
Brussels; Editing by Lincoln Feast, John Stonestreet)