UK parliamentary committee probes Cerberus’s £13bn Granite purchase

The parliamentary committee charged with scrutinising the activities of the UK Treasury has raised concerns over the sale of a £13bn residential mortgage portfolio to Cerberus Capital Management in November.

The parliamentary committee charged with scrutinising the activities of the UK Treasury is demanding answers over the sale of a £13bn residential mortgage portfolio to Cerberus Capital Management in November.

Andrew Tyrie, chairman of the Treasury Select Committee, has written to the government’s economic secretary, Harriet Baldwin, posing questions regarding the sale price of the ‘Granite’ portfolio, potential tax revenue losses and the sale’s true impact on customers, among other things.

Cerberus was selected in November by the government’s UK Asset Resolution (UKAR) to buy £12 billion of loans in the Granite securitisation vehicle and other legacy mortgages of NRAM, the former Northern Rock mortgage business. The sale was approved by the Treasury.

At the time,  New York-based private equity firm Cerberus said that the terms and conditions of the existing loan agreements would remain unchanged and that UKAR’s mortgage servicing arm would continue to service the loans.

In Tyrie’s letter to Baldwin, he asked for assurance that the assets were sold to Cerberus at the correct price. Acknowledging that the sale price was above a recent calculation of the book value, Tyrie said that commentators have suggested the deal was cheap, as the loans are not as precarious as in 2007 and the value of the underlying assets has increased.

The Treasury Committee also asked whether the government had taken into account a potential loss in tax revenues to the UK exchequer due to Cerberus’s international tax arrangements. The impact of the deal on former Northern Rock customers was also questioned, with Tyrie citing reports that Cerberus is “tough” in enforcing ostensible breaches in covenants.

Northern Rock
Northern Rock

Parliamentary questions about Cerberus’s purchase of Granite were first tabled on 2 December by Labour member of parliament Richard Burgon. Among the questions Burgon put to the government was whether chancellor George Osborne had taken into account the UK National Crime Agency’s investigation into Cerberus’s April 2014 purchase of a £4.5 billion book of Northern Irish loans from Ireland’s National Asset Management Agency (NAMA).

The so-called Project Eagle deal has been subject to a series of allegations in the Republic of Ireland parliament by an independent politician, Mick Wallace. Under parliamentary privilege, Wallace claimed that improper payments were made during the deal process. The allegations have sparked an angry response from NAMA and Cerberus has denied any wrongdoing.

In answer to Burgon’s question, Baldwin, the Economic Secretary, replied that Cerberus was selected to buy Granite after a “thorough” due diligence process and that the firm has “confirmed to UKAR that their involvement in the Project Eagle loan sale was conducted with the utmost integrity”.

Baldwin also confirmed to Burgon that Cerberus had agreed to sell £3.3 billion of the Granite assets to TSB Bank in the wake of the Granite deal. The book value of the overall Granite portfolio was last calculated on 30 September, ahead of the 13 November sale, Baldwin also confirmed.

Commenting on the Treasury Committee’s questions to the Treasury, Tyrie said: “Seven years after the taxpayer bailed out Northern Rock, it’s good news that the chancellor has managed to sell these assets. Concerns have been raised about the suitability of Cerberus as the buyer of the mortgage book. This merits further scrutiny.”

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