I can today confirm that I have laid a Treasury Minute informing the House of the contingent liability that HM Treasury has taken on in authorising the sale of a portfolio of Bradford & Bingley (B&B) and NRAM commercial loans, acquired during the financial crisis under the last Labour Government, to a consortium formed of Arrow Global Limited and Davidson Kempner European Partners LLP, who are specialist asset buyers.
On this occasion, due to the sensitivities surrounding the commercial negotiation of this sale, it has not been possible to notify Parliament of the particulars of the liability in advance of the transaction documents being signed. The Chairs of the Public Accounts Committee and Treasury Committee were notified in confidence ahead of the transaction being agreed.
The contingent liability includes certain market standard time and value capped warranties confirming regulatory, legislative and contractual compliance. In addition, there are further remote fundamental market-standard warranties. The maximum contingent liability arising from all contractual claims is approximately £61 million. The impact of the sale on a selection of fiscal metrics is as follows:
Public Sector Net Debt is reduced by £61 million in 2018-19;
Public Sector Net Borrowing is increased by a total of £7.9 million by 2022-23;
Public Sector Net Liabilities is increased by £30 million in 2018-19; and
Public Sector Net Financial Liabilities is increased by £30 million in 2018-19.
UKAR will incur an accounting loss of £30 million on the transaction in 2018-19. UKAR is expected to make an overall profit in 2018-19. The Net Present Value of the assets if held to maturity was estimated by UKAR’s advisors using Green Book assumptions. UKAR received less than this estimated hold value in exchange for the assets. The Government should not be a long-term owner of financial sector assets and it is right that these assets should be returned to private hands.
I will update the House of any further changes to B&B and NRAM as necessary.