Giant funds vie for £5.5bn chunk of taxpayer-owned bank loans

(c) Sky News 2018: <a href="">Giant funds vie for £5.5bn chunk of taxpayer-owned bank loans</a>

Some of the world's biggest fund managers are competing to buy £5.5bn of mortgage loans taken over by UK taxpayers during the banking crisis almost a decade ago.

Sky News has learnt that Pacific Investment Management Co, better known as Pimco, the hedge funds Cerberus Capital Management and Och-Ziff, and M&G Prudential have been shortlisted by bankers advising UK Asset Resolution (UKAR) on the deal.

The interest of such prominent bidders will please Treasury officials keen to secure an attractive price for the assets.

Sources said the line-up of potential buyers broadly reflected earlier sale processes run by UKAR, which included an £11.8bn sale to Blackstone (NYSE: BX - news) and Prudential (SES: K6S.SI - news) last year.

It was unclear on Tuesday whether Blackstone was participating in the current auction, which is expected to conclude as soon as next month.

Cerberus has also been a purchaser of UK crisis-era loans, acquiring a £13bn portfolio of securitised mortgages in November 2015.

UKAR was formed by ministers in 2009 to house the remnants of Bradford & Bingley and Northern Rock.

The proceeds from the latest sale will‎ be used to repay the outstanding £4.7bn of a Treasury loan to the Financial Services Compensation Scheme (FSCS), the interest on which is paid by Britain's five biggest banks and Nationwide, the building society.

Almost £11bn of that loan has been repaid.

The return of the remaining sum will mark another milestone in removing the legacies of one of the ‎worst financial crises in British history.

Chancellor Philip Hammond said in his budget in November that further disposals of Royal Bank of Scotland (LSE: RBS.L - news) (RBS) shares would resume within about 18 months, although the timing will depend upon the lender reaching a settlement over its mis-selling of residential mortgage-backed securities.

Sky News revealed at the weekend that Treasury officials were holding talks with US counterparts in an attempt to accelerate a deal.

The majority of the £5.5bn mortgages for sale were issued by B&B, while a smaller tranche relates to assets acquired from GMAC-RFC and Kensington Mortgages‎.

The Treasury has overcome an obstacle to the auction in the form of new rules imposed by Brussels relating to the inclusion of self-certified mortgages in securitisation vehicles.

The £20bn used to rescue Lloyds Banking Group has now been returned to taxpayers, generating a modest profit.

Tens of billions of pounds more has been yielded from the disposal of the customer base of Northern Rock to Virgin Money, and loans made by both it and B&B.

Morgan Stanley (Xetra: 885836 - news) , the Wall Street bank, is handling the latest sale on behalf of ministers and UKAR.

UKAR declined to comment.