October 14, 2014 / 6:40 AM / 5 years ago

UK 'zombie' bank sells 2.7 billion pounds of loans to JP Morgan group

LONDON (Reuters) - Britain’s government sold 2.7 billion pounds of mortgages made by Northern Rock and Bradford & Bingley on Tuesday to speed up the run-down of loans made by the nationalised banks.

State-owned UK Asset Resolution (UKAR), the holding company for Bradford & Bingley and Northern Rock Asset Management, said it sold the portfolio of about 27,000 performing mortgages to Commercial First, a consortium led by U.S. bank JP Morgan (JPM.N).

It is the largest sale to date by UKAR, and leaves it with about 56 billion pounds of residential mortgages to either sell or run-down.

UKAR is a so-called zombie bank that does not take new business and is winding down the loans of Northern Rock and Bradford & Bingley, who were both nationalised during the financial crisis.

UKAR has said it will sell portfolios when it can to accelerate the process. It has previously sold portfolios to Virgin Money and private equity firm J.C. Flowers.

As loans are repaid or sold, UKAR pays back the government. The book of loans has been reduced by more than 35 percent from 116 billion pounds over the last four years.

The latest sale will turn a 55 million pound profit for UKAR, after the portfolio was sold at 2 percent premium to its book value.

“The continued fair treatment of customers was a key consideration for UKAR in selecting the winning bid,” UKAR said, saying the sale would not affect the terms and conditions of the mortgages in the portfolio.

JPMorgan said it will syndicate the portfolio as residential mortgage-backed securities (RMBS) to a group of investors.

The transfer of the mortgages to the Commercial First consortium will be phased over the next 12 months.

After being nationalised in 2008, Northern Rock’s business was split into two companies. A ‘good’ bank that was open to new business was sold to Richard Branson’s Virgin Money, while the book of old loans were handed over to UKAR.

Reporting By Laura Noonan and Steve Slater; Editing by Jamie McGeever and Susan Thomas

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