RBS Eyes Shock Bid For £13bn Mortgage Book

The taxpayer-backed Royal Bank of Scotland (LSE: RBS.L - news) (RBS) has emerged as a surprise bidder for parts of a £13bn state-owned mortgage portfolio earmarked for sale by George Osborne.

Sky News has learnt that RBS is among a pack of prospective bidders which have registered an interest in acquiring Granite, a mortgage securitisation vehicle established by Northern Rock nearly 15 years ago.

If RBS proceeds, it would be the first significant acquisition made by the lender since it was bailed out with £45.5bn of taxpayers' money more than six years ago.

The sale process, announced by the Chancellor in his pre-General Election Budget in March, is at an early stage, and firm offers have yet to be received.

If RBS does ultimately buy assets from the Granite portfolio, it would represent a rare example of one taxpayer-backed entity buying parts of another.

Granite is part of UK Asset Resolution (UKAR), which is a subsidiary of UK Financial Investments, the holding company which also manages the Government's 80% shareholding in RBS.

People close to the situation said on Tuesday that RBS was examining an offer for Granite in an attempt to deploy some of the surplus liquidity on its balance sheet.

One insider said that while a formal decision had yet to be taken to proceed, a bid would reflect the bank's strategically stated aims of investing primarily in its UK retail and commercial business, to grow its position in mortgages and to utilise surplus funding.

RBS had a loan-to-deposit ratio of 95% at the end of the first quarter of 2015 and £157bn of liquidity, some of which could be deployed on assets such as those held by Granite.

Sources said it was possible that RBS could team up with other buyers such as private equity firms, or that it could decide not to bid altogether.

A range of financial and other trade bidders are also considering bids for Granite, the auction of which is being handled by bankers at Credit Suisse (NYSE: CS - news) .

Under the terms of its rescue by the Treasury in 2008 and amended by the European Commission last year, RBS is restricted from making acquisitions where they involve a price above a certain threshold until it completes the sale of hundreds of branches being rebranded as Williams & Glyn.

That disposal is unlikely to be finalised until 2017, although sources close to RBS said that any attempt to buy parts of Granite would comply with the EU state aid agreement.

In a letter to Mr Osborne in March, UKFI's executive chairman, James Leigh-Pemberton, said that market conditions meant that a sale of the mortgage portfolio could yield an attractive price for the taxpayer.

Previous disposals of assets held by UKAR, including a deal with JP Morgan last year, generated a profit for the Exchequer.

RBS declined to comment on Wednesday.