Northern Rock Sells 2% Of Mortgage Debt

Under-fire mortgage lender Northern Rock has today announced that is has sold around £2 billion worth of mortgage assets to American investment house JP Morgan in a bid to raise capital in order to pay back its government-secured loans from the Bank of England.

The funds will contribute towards the £26 billion worth of outstanding liabilities the bank holds to the Bank of England and the taxpayer, in a move to reduce its overall liquidity problems in order to continue trading following its losses linked to the now-flat US sub-prime mortgage sector.

JP Morgan are said to have purchased the debts from Northern Rock for a 2.25% premium on face value, which will help Northern Rock to recoup some funds in order to pay off the loans outstanding to the UK Treasury prior to any possible sale of the business to the waiting suitors.

The bank has been seen as something of a hot property in recent weeks, despite the fact that it is suffering from crippling liquidity problems and was reduced to its knees following rising liquidity difficulties off the back of the sub-prime sector fallout.

Whilst there are several equity groups in the running for the bank, it looks now increasingly likely that Northern Rock will be nationalised, with capital at a premium as a result of the worldwide credit crunch that has emerged following the sub-prime collapse.

It remains to be seen whether the influx of capital from JP Morgan will help set the bank on its way to recovery after the liquidity problems of the last few months.

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