Oral question asked in the House of Lords, by Baroness Noakes (Conservative). It was answered on Wednesday, 26 November 2008.

Banking: Northern Rock

Question: My Lords, I thank the Minister for that response. Does he agree that throughout the passage of the Northern Rock legislation we were consistently told by the noble Lord, Lord Davies of Oldham, that there would be no exposure to Granite as a result of the nationalisation of Northern Rock? Will the Minister confirm that the non-asset trigger, and indeed the arrears trigger which also happened last week, means that Northern Rock will now receive nothing from Granite until all the other bondholders are repaid and that, if there is any shortfall, Northern Rock remains exposed for the £3.3 billion or so seller share, which, one way or another, will end up being borne by the taxpayer?

Answer: My Lords, the seller share trigger is 8.23 per cent of the pool. The seller’s interest share fell below that because Northern Rock concluded that it wished neither to put high-quality assets into Granite—it had not done that since September 2007, which is totally in accordance with its agreement under state aid not to grow its book of business—nor to take assets out of Granite. Accordingly, under rapid amortisation, its position moves from pari passu to subordination, but it has not changed in terms of the quality of the underlying assets in place to meet its obligations. I confirm that the noble Baroness, Lady Noakes, is correct that the taxpayer has no specific responsibility related to Granite. Granite is not guaranteed by Northern Rock or the taxpayer.

Secondary information