The nationalisation of Northern Rock came in for severe criticism yesterday, as opposition MPs claimed the best mortgages held by the bank were kept in a Jersey-based trust called Granite.

Attacks from MPs forced prime minister Gordon Brown to deny that the state had nationalised Northern Rock's 'rubbish' mortgages, while the 'best-quality'' loans were locked up in Granite and not part of the nationalisation.

The FT reports that the Tories claimed £45bn of the Rock's mortgages were held in Granite, leaving the taxpayer exposed to the remainder of the bank's riskier £110bn mortgages.

Brown denied that Granite had creamed off the best part of Rock's loan book, but Liberal Democrat Treasury spokesman Vince Cable has demanded an independent audit of Rock's loan book to clarify the quality of its loans.

Chancellor Alistair Darling has written to Cable to assure him that government would not provide any guarantee arrangements to Granite bondholders and that the FSA had assessed Northern Rock and vouched for the quality of its assets.

Further reading:
Big Four firms vie for Northern Rock valuation deal
NAO to probe government's Rock rescue