Floundering Rock valued at £5.68bn in the red

Northern Rock would have been forced to be sold piecemeal by administrators
if the government’s £25bn bailout had been removed, the valuer of the stricken
company said today.

Charged with putting a price on the embattled bank, Andrew Caldwell,
valuations partner at BDO, said Northern Rock would be in deficit of £5.68bn if
its assets were sold off by an administrator after paying back the government.

Caldwell said it was unlikely Northern Rock could have been sold by an
administrator in its entirety, leading him to consider the likely realisable
value of Northern Rock’s remaining assets separately.

The bank’s balance sheet showed an asset surplus of £1.63bn before the
government’s £25bn bailout, Caldwell said in a
released today.

In order to pay back the government loan, Northern Rock would have to cash in
£0.73bn of money, £1.6bn of UK gilts and £27.12bn of residential mortgage loans
realised at £23.05bn.

This would lead to a deficit of £2.44bn, but the situation would have
worsened on the appointment of an administrator to unwind the remains of the

“Following the withdrawal of financial assistance, I must consider the
assumed administration of Northern Rock’s portfolio of assets, that is whether
to sell off the assets immediately, or sell part and run off the rest.

“Although I have made optimistic assumptions about the administration, I
believe that further losses of at least £3.24bn would be produced.

“The total deficit would therefore become approximately £5.68bn.”

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