EU Commission Clears Northern Rock Restructuring Plan

The European Commission Wednesday cleared a series of measures proposed by the U.K. government to prop up the restructuring of indebted mortgage lender Northern Rock PLC (NHRKF).

The U.K. plan was cleared without draconian conditions which some had feared after Dutch bank ING Group NV (INGA.AE) was obliged to split its banking and insurance businesses.

Under the approved plan, Northern Rock will be split into a "good" bank which will hold the bank's deposits, sound loans and mortgages and a "bad" bank holding mostly soured loans which will be gradually wound down.

The commission said it is satisfied the restructuring package will restore the good bank's long-term viability and allow the bad bank to be liquidated in an orderly fashion.

The commission's investigation also found the financial aid package in the plan was kept to a minimum as required under EU. state aid rules and won't give the business an undue advantage over rivals.

"The failure of Northern Rock would have had major detrimental effects on the U.K. mortgage market and the overall financial stability of the U.K. economy," EU Competition Commissioner Neelie Kroes said.

The U.K. government's financial support includes recapitalization measures of up to GBP3 billion, liquidity measures of up to GBP27 billion and guarantees covering several billion pounds of liabilities.

-By Carolyn Henson, Dow Jones Newswires; [phone]; [e-mail]